Commercial Mortgages

Houses in multiple occupation and multi-unit freehold blocks sit in a narrower lender universe than standard buy-to-let. The wrong choice of lender turns a strong asset into an ungetable case.

Article 4 designations restrict where new HMOs can be created without full planning. Licensing regimes vary borough to borough. And valuation is the big one: some lenders value an HMO as bricks and mortar — the same house next door with a family in it — while specialists value on investment yield, often producing a dramatically higher figure and a very different LTV.

Pubs, hotels, restaurants and guest houses are underwritten as trading businesses that happen to sit inside a building. The property matters, but the accounts matter more.

Lenders will want two or three years of trading history, ideally showing stable or growing EBITDA. Valuation is on a going-concern basis — the value of the trade plus the property, not the property alone — which can move significantly with the accounts. Operator experience in the sector is a hard requirement for most lenders; first-time operators typically need an experienced manager on the payroll.

If your business already pays rent on premises, buying them is often the single best balance-sheet move available. Affordability is assessed against the business accounts rather than a rental income, and the mortgage payment usually looks familiar next to the rent it replaces.

The case for owning rather than leasing is not romantic — it is the retention of every capital improvement you make, the removal of a landlord from your operational decisions, and an asset on the balance sheet that appreciates instead of a lease that runs down.

Single-let and multi-let commercial investment is priced on the rent, the tenants and the lease. A strong covenant on a long unexpired term unlocks the sharpest pricing; a mixed rent roll on short leases moves the case into specialist territory but is still very fundable.

The two figures underwriters will land on first are interest cover — how comfortably the rent covers the debt service — and the weighted average unexpired lease term. Void risk is priced in explicitly, and any tenant break inside the loan term will get attention.

A shop with flats above, an office with residential upper parts, a pub with accommodation. The residential element usually drives the value while the commercial element drives the lending category, which means the case sits outside standard buy-to-let and outside pure commercial. Lenders split on how they treat the mix — some cap the commercial percentage, some value the whole on an investment yield, some insist on separate valuations.

This is where a mispriced case most often sits, because the same asset can attract materially different terms depending on which lender's definition it falls under, and on whether the SDLT position has been read correctly.