Brokers say commercial elements can affect valuations and lender appetite in historic city-centre buildings
The recent fire in Glasgow city centre has put renewed focus on the complexities brokers can face when arranging finance for mixed-use buildings in historic urban locations.
The fire broke out on Sunday afternoon in a vape shop on Union Street, next to Glasgow Central Station, destroying a historic building, which dates back to 1851.
Alan McKenzie, of Your Next Step Mortgage, said the incident highlights challenges that already exist when lending against older buildings with both commercial and residential elements.
“We do a fair bit of city-centre lending in Glasgow, and mixed-use heritage properties can create some hurdles, particularly when commercial premises sit at ground level.”
Across many UK city centres, buildings combining shops or other commercial premises with residential accommodation are common. However, brokers say the commercial element can complicate how lenders and valuers assess demand, resale prospects and long-term lending options.
Guy Nyirenda, of Altura Mortgage Finance, said mixed-use properties often require lenders and surveyors to assess both parts of the building when determining value.
“Mixed-use properties add complexity in assessing the value and demand for resale with lenders and surveyors alike, especially if the commercial element is a substantial percentage of floor space of the overall building or is vacant at the point of financing.”
He added that the type of commercial tenant occupying the building can also influence lender appetite, particularly where demand for that type of business is uncertain.
Even where residential accommodation sits above commercial premises in a desirable location, valuers still need to consider how the commercial unit affects the residential side of the property. Nyirenda noted that lenders may find the residential element easier to assess but must still account for the influence of the commercial space when determining value and rental demand.
Listed buildings and lending
Historic properties themselves are not necessarily a barrier to lending, particularly in city centres where older buildings are common and often retain strong demand.
Nyirenda said lenders are generally comfortable financing older buildings in these locations. However, listed status or higher-risk classifications can introduce additional factors that lenders and surveyors must consider, including potential maintenance and insurance costs and restrictions on future alterations.
“If the building is listed or has any Higher Risk status, these will need to be considered by the lender and the surveyor as they may lead to additional maintenance or insurance costs that can impact current and future values.”
Such restrictions can also affect how the property may be improved or adapted in the future.
Commercial use matters
For borrowers considering mixed-use properties, brokers say the commercial element should be carefully examined before purchase.
Nyirenda advises buyers to understand how the commercial space is currently used, as this can influence both the property’s value and its long-term flexibility. Some investors may hope to convert commercial space into residential accommodation in the future, but planning restrictions can make that difficult.
“A buyer may well fancy changing the use to residential at a later date, but there may be restrictions that prevent this from being possible.”
He also recommends reviewing the property’s buildings insurance documentation to identify any potential concerns or exclusions.
Lenders will also look closely at how the building is divided between residential and commercial space, with more financing options typically available where the residential element makes up the larger share of the property.
Lenders may tighten scrutiny
The fire has also reinforced concerns about the risks associated with older mixed-use buildings in dense city centres. McKenzie believes incidents such as this could prompt lenders to take a closer look at similar properties.
“After this incident, I think we’ll see much closer scrutiny on regulations, it’s shocking how easily this happened.”
Greater scrutiny could also influence how lenders approach mixed-use properties in future, particularly where historic buildings carry additional maintenance and insurance considerations.
