Lenders exercise a high degree of diligence when assessing semi-commercial property finance applications, given the unique nature of these investments. Here are some examples of the things that the lender may scrutinise:

Financial Health and Viability:
The financial robustness of the semi-commercial property is analysed through its loan-to-value ratio and the sufficiency of rental income to cover loan repayments. A strong rental yield can positively influence a lender’s decision by demonstrating that loan repayments can be comfortably covered by the rental income. In addition to the rents that are actually being achieved (passing rents), the lender will also place significant weight on the valuer’s opinion of market rent value, and typically affordability will be assessed on the lower of the passing rents and the valuer’s opinion of market rent value.

Location, Demand, and Occupancy History:
The commercial component of a semi-commercial property may be more vulnerable to void periods. Commercial tenants that are well-matched to the property type can be harder to find than residential tenants, so lenders may consider demand for the particular commercial property type, the length of time remaining on the current lease, and the financial strength of the tenant. They will also look at whether the property has a good occupancy history, and how well the occupancy history has been sustained under the present management, demonstrating the borrower’s experience and success in managing the particular property and tenant type.

Borrower Experience and Expertise:
Experience managing semi-commercial properties is particularly valued because of the complexities involved in handling both commercial and residential spaces. Lenders may look favourably on applicants with a history of efficiently managing such properties, or those who have support from a professional managing agent. The lender may also assess the borrower’s plans for managing the regulatory and maintenance requirements of such properties, as well as their plans for managing commercial tenants and leases.

Income Generation and Asset Liquidity:
Lenders prioritise the property’s capacity to generate adequate income for servicing the loan. They’ll assess the property’s historical financial performance and the likelihood of continued demand for both commercial and residential tenancies. The liquidity of the property may also be a consideration, reflecting its potential resale value and ease of exit should circumstances necessitate it. Additionally, lenders will evaluate market trends and location-specific factors that could affect the property’s performance and risk profile.

Licensing and Planning Consent:
If parts of the property have been converted or redeveloped, for example, if the upper parts have been converted from commercial to residential use, or if they have been extended, then the lender or their solicitors will be looking to confirm that the appropriate planning consents are in place where required. If the residential part of the property functions as an HMO, then any additional requirements that this may imply, such as licensing, will also be reviewed by the lender or their solicitors. With regard to the operation of the commercial part of the property, depending on the current commercial use, they will also want to confirm that this is consistent with the property’s planning consents. Energy Performance Certificate (EPC) requirements relating to both the commercial and residential parts may vary, but requirements for both have continued to become more stringent, and lenders will have expectations in this regard.