The property development market is highly varied, and there are innumerable opportunities for developers to find profitable new projects. The flexibility of property developers and their ability to adapt to any project means they’re able to take on work that’s challenging and diverse, and semi-commercial development projects are a great example of how developers can adapt to take on any project. As with all development projects there are specialist lenders who have developed dedicated semi commercial finance products, precisely designed to meet the needs of developers in this sector. As with many other aspects of development finance, semi commercial loan providers are amongst the most flexible lenders in the market, able to adapt their terms to suit the requirements of their clients’ projects.
In this article we’ll explore the nature of semi commercial finance, and how lenders in this sector meet the particular needs of this type of development. As always, it’s important to bear in mind that semi-commercial finance is a type of secured lending, and should not be taken on without first consulting a qualified financial advisor - they’ll be able to ascertain whether a loan is appropriate for the developer’s project.
Semi commercial property development differs from the two main strands of real estate; residential and commercial. Residential properties are homes that will be lived in, while commercial properties are purely for business purposes. However, there are properties which fall into the mixed-use semi commercial category; a flat above a shop, for instance, or a B&B with live-in owners. These properties don’t fit comfortably into either category, and as such are not eligible for either type of finance - a specialised solution is required, and there are dedicated lenders within the development finance community who can provide it.
Semi-commercial properties are defined as any combination of residential and commercial property; for example, a kennel service with accommodation for one staff member would be semi-commercial, as would a home with an attached holiday cottage. If more than 40% of the property is given over to residential usage then lending on the property must be regulated by the Financial Conduct Authority, just as with a standard owner-occupied property. This means that homes with a small commercial element still benefit from FCA consumer protection, whilst commercial properties with a small residential element aren’t forced to use FCA-accredited lenders, and can source finances from a wider variety of lenders.
The value of a semi-commercial property is defined by both the nature of the commerce that will take place there and by the floorspace of the property’s residential aspect. A block of flats with a small supermarket on the ground floor will have its value calculated by combining the total worth of all the flats with the value of the supermarket’s lease. A long-term lease from a major supermarket will be perceived as more valuable than a short-term lease from a local convenience store, so it’s important to consider what the tenants and purpose of the property will be, not simply the size and market value of the premises.
Any development project relies on a highly secure, stable source of finance to ensure the project is escalated on schedule. Time is so often the key to success in property development, so it’s essential to secure a flexible and reliable semi-commercial finance package before beginning a development project. Developers who are working to refurbish a block of flats, for instance, which will contain a retail element such as a small shop or laundromat, must bear in mind that neither a fully residential nor a fully commercial finance package will suit their needs, and they must instead source a semi-commercial property loan.
An interesting aspect of semi-commercial finance also comes into play in Buy-to-Let lending, as this sector of the market also fills the gap between residential and commercial use. A typical buy to let home will be owned by someone who doesn’t live there, so while it may technically be a residential property (since someone is living there), it isn’t owner-occupied, and thus cannot be considered eligible for mainstream mortgages. Normally, owners of BTL homes must seek a buy-to-let mortgage, but they may find that this isn’t possible if they intend to live in the property themselves whilst also letting it out. For instance, they might own the block of flats in which they live. In this situation, the property would be mixed-use; the owner occupies part of the property, so it’s partly residential, but the rest of the property is let out for profit, which is commercial. Since buy-to-let mortgages cannot be granted on a property which the owner lives in, semi-commercial finance is the only funding solution available.
Semi-commercial lending clearly fills a niche in the property market, but it requires a highly experienced lender to accurately assess a property’s value and combined worth. Lenders must have experience in both the residential and commercial lending markets, and be used to handling development projects as well - no development finance task is simple, but semi-commercial finance is a particularly tricky sector that requires an expert touch. Lenders in this area are highly experienced and can create bespoke lending packages that meet the needs of each individual project.
Within the semi-commercial development sector there is an enormous amount of diversity, and semi commercial lenders must work hard to remain flexible. A rigid attitude to lending will not work in this competitive market, and lenders must be able to adapt their lending criteria for each and every project. The conversion of a property’s ground floor into a new convenience store might well require an entirely different approach to the wholesale construction of a mixed-use premises, so it’s vital that lenders in this sector are adaptable and can meet different needs. As with many development finance lenders, though, semi-commercial loan providers are comprised of highly dedicated financial professionals, who can quickly provide firm decisions and useful advice.
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