Diversification has always been a key word for any successful business operating across the mortgage arena over the past few decades. After all, this is a market which has successfully navigated its way through regulation, the credit crunch, increased regulatory scrutiny, significant legislative change (especially regarding the buy-to-let sector), the pandemic and the infamous mini-budget.
Throughout the last decade, landlords have endured and prospered through these ups and downs, and in more recent years we’ve seen the increasing professionalisation of the PRS develop again, with more landlords now focussing on highly strategic portfolio mixing.
However, with additional financial pressure being placed on all landlords via higher operating costs throughout an uncertain economic period, it’s evident that they have had to carefully examine the performance and potential of individual properties within their portfolios to determine their future. Inevitably, this has led to some offloading of properties but also an uptake in demand for higher-yielding assets such as Houses in Multiple Occupation (HMOs), Multi-Unit Freehold Block (MUFBs) and holiday lets.
Which leads to the question – is there another potential area of opportunity arising for landlords?
Over the past 12 to 18 months, we’ve noted a rise in the number of conversations with our intermediary partners around mortgages for mixed-use property – that’s property with part commercial use such as flats above and a shop below. Having got accustomed to a slightly more complex world of HMOs, MUFBs and holiday lets, landlords appear to have become more comfortable operating slightly beyond their residential BTL norm and may now be looking further afield to help manage their risk exposure.
The difference with a property with rental income from the commercial sector and one from the residential market is that they can follow different cadences, so when one is at risk of a downturn, the other is not necessarily.
In a post-pandemic environment, it’s fair to say that we have seen residential and commercial spaces entirely reimagined by councils looking to breathe life back into city and town centres and investors becoming increasing curious in the investment opportunity.
This is evident across the commercial landscape with recent findings from the National Association of Commercial Finance Brokers (NACFB) highlighting that commercial finance brokers facilitated £38 billion in lending to SMEs in 2023.
Within this, 70% of broker-led transactions were placed with either specialist lenders or challenger banks, whilst a quarter of broker respondents shared that their relationships with high street banks had worsened in 2023. Importantly, it also highlighted the critical role of brokers, with 32% of small businesses successfully funded in 2023 having previously been refused elsewhere, marking a significant 10% increase year-on-year.
Whilst we don’t know the breakdown regarding the different types of lending and properties involved within this data, this does help outline the growing influence of the advice process and the rising prominence of specialist lenders across the commercial and mixed-use mortgage sectors.
In response to the growing number of landlords and investors who are looking to move into the mixed-use/part-commercial properties area to combat simultaneous voids, thus mitigating one of the most significant risks associated with property investment, we have recently incorporated this product offering into our new Solutions by Foundation proposition.
This represents an exciting step for us and provides our intermediary partners with an addition option for their clients and demonstrates how we are always looking to extend our solutions-driven offering to help landlords successfully divest year after year.
Grant Hendry is director of sales at Foundation Home Loans