How lenders view the commercial element
The homes in a mixed-use scheme are usually valued on comparable sales, and lenders are comfortable lending against them. The commercial space is valued as an investment, depending on the rent, the tenant and the length of the lease. If it is unlet, valuers assume a void period and letting costs, which can reduce its value considerably.
Some lenders limit the commercial share of a scheme, for example accepting a small commercial element in a residential-led scheme, while others fund mixed-use and commercial schemes more broadly. On our panel, several development lenders state that they consider mixed-use schemes, and at least one accepts residential schemes with a small commercial element. Matching the scheme's balance to the right lender is the first step.
Planning and design
Mixed-use schemes need planning permission for each use. Ground floor commercial space is often in Class E, which covers a wide range of uses such as shops, offices, cafes and some health and leisure uses, giving flexibility in finding a tenant. Some uses, such as pubs and hot food takeaways, fall outside Class E.
Design matters for both value and finance: separate entrances, refuse and servicing for each use, sound insulation and fire separation between the commercial and residential parts. Lenders' monitoring surveyors will look at these during the build.
Exit strategies
A mixed-use scheme often has more than one exit. The homes may be sold individually, while the commercial units are sold as investments once let, or retained and refinanced on a commercial mortgage. Some developers sell the whole scheme to one investor, or keep the homes as a build-to-rent block.
Lenders want to see that each part of the exit is realistic and that the timing works. A development exit bridge can also help if the commercial units take longer to let than expected.
Arranging mixed-use finance
We compare development lenders on appetite for mixed-use, the commercial share they accept, leverage and cost, then approach those that fit with a clear case. Instant Quotes gives indicative figures as a starting point, and final terms depend on each lender's valuation, monitoring surveyor and checks.
