"This remains an often intricate and complex process, a factor which highlights just how important it is for advisers to form even closer relationships with specialist lenders "
However, one of the more pronounced shifts in recent years has been the decline of the ‘amateur’ landlord and the rise of the ‘professional’ landlord. The factors behind this shift have been well-documented. And with portfolio landlords dominating the BTL purchase market, it’s little wonder that areas which may have been considered niche in the past are really coming to the fore as a growing number of landlords look for greater diversity across their portfolios and continue to explore different asset classes.
One such area is semi-commercial. As a rule of thumb, semi-commercial mortgages aim to serve both the commercial and residential needs of an investor or borrower and are typically assessed on the unique terms of the project. Such products can be used to acquire sites, fund the development of new projects, conversions and refurbishments. Examples include flats situated above shops, restaurants or offices or a development made up of residences and commercial buildings. It can also encompass pubs with living accommodation, boarding kennels and catteries with living quarters and guest houses or bed and breakfasts with on-site owner’s accommodation.
Historically speaking, the commercial lending market has long been the domain of larger, high street banks. However, semi-commercial is a sector where the size and scale of a variety of transactions is evident. Larger lenders tend to have commercial divisions which are unlikely to look at an asset size that a lender such as HTB would consider. In many cases it would simply not be big enough to interest them. Then there are the residential divisions within these larger lenders which don’t have the ability to evaluate commercial assets, meaning that semi-commercial remains an underserved segment.
Having said that, it’s fair to say that we’ve seen increased activity from lenders operating in and around the semi-commercial space in recent times. Speaking from a HTB standpoint, we’ve experienced record levels of lending across our semi-commercial business and we expect this trend to continue for a few reasons. Primarily, this is due to the strong yields being generated, good cash flow and asset values holding up well.
Although challenges do remain. These days, there is increased difficulty in knowing exactly what a strong tenant looks like. It’s very hard to tell. Being able to fully understand how they are trading, how they have coped pre-pandemic, during the pandemic and potentially post pandemic is vital in the current economic climate. For example, takeaway restaurants have become the go-to asset to lend against, whereas quality retail units in prime central London have naturally struggled and have been largely shunned by finance providers. This revelation would have been a real shock pre-Covid and this is something that you would never have been able to predict if you’d gone back 18 months. What it does show is just how the market has evolved and how many semi-commercial offerings have changed significantly over the past year as a consequence of trading restrictions for many businesses.
From an intermediary perspective, lenders operating within this product space need to follow a structured approach and be as transparent as possible in terms of how and where they can do business, not to mention how their service levels are currently stacking up. This remains an often intricate and complex process, a factor which highlights just how important it is for advisers to form even closer relationships with specialist lenders to develop a better understanding of individual lending ranges, criteria, policies and lending scenarios. After all, it’s the strength of these connections which will be key in servicing the needs of the growing number of landlords who are looking to make the most of emerging market dynamics, trends and demographics.
