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Our property investment expert is Jeni Browne, Sales Director at
Mortgages for Business
www.mortgagesforbusiness.co.uk
Tel: 0345 345 6788
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Question
I’m a landlord with five buy-to-let properties and I’m thinking about diversifying my portfolio to include commercial property. What’s the difference between a traditional buy-to-let and commercial loan? And am I allowed to have a mixed portfolio?
Answer
There is no big difference between a buy-to-let mortgage and a commercial loan insofar as you pay interest each month and the mortgage is secured on the asset. However, you will find that commercial loans are generally (although not always) arranged on a repayment basis, often over 20 years. In addition, the rates tend to be a little more expensive that their buy-to-let counterparts. Lastly, the calculation in terms of how much you can borrow based on the rental income tends to be more restrictive, although the extent of this will hinge on the lender and also the strength of the covenant, i.e. the type and strength of the tenant and how long is left on the lease before the next break clause.
Commercial lending is a more bespoke proposition, with lenders tending to take a view in the round for each application, rather than using the tick box approach favoured by the more mainstream buy-to-let lenders.
You are absolutely able to have a mixed portfolio, and I think it is fair to say that we have seen an increase in interest from landlords looking to diversify their assets by bringing some commercial property into the mix. There are also some tax advantages which come with investing in commercial property over residential but always take professional advice in this regard.
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Question
My husband and I own three buy-to-let properties all worth around £200,000 which we rent out for £700 each month. Is it possible to release equity against each one so that we can purchase a residential property for ourselves?
Answer
The very short answer is that yes, it is indeed possible. The amount you can raise against each property is harder to answer without knowing more about the asset, and also about you and your circumstances. However, lenders are comfortable to lend money to landlords where the purpose of the funds is to assist with the purchase of a new property.
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Question
I have just inherited some money and I am thinking about investing it in a buy-to-let property. I have seen some flats which have residential and business units in the same building. The thing is I have heard most lenders aren’t really keen on granting mortgages on semi-commercial properties. Why is this and what would be my best bet on getting a mortgage?
Answer
A buy-to-let mortgage is for property which is purely residential. Commercial mortgages are for properties which are either entirely commercial, or partly residential and partly commercial. The reason why a residential buy-to-let lender would not want to lend on commercial is that this is regarded as a different asset class, with different risks associated with it and a different underwriting approach being required.
Furthermore, the capital adequacy requirements are higher for commercial assets than residential so lenders will always treat them differently.
For you at this stage in your property investment journey, I would say that financing a standard buy-to-let is easier than financing a mixed residential/commercial property. But this should form only a part of your investment decision, which should also include proper tax advice, your view on the property market and your longer-term plans.
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