Buying a mixed-use property at auction can be a great investment opportunity.
You've found a property with potential, you've secured the winning bid, and you've got plans to turn it into an income-producing investment.
But there's one big question.
How are you going to fund it?
Mixed-use properties can be more complicated to finance than standard residential purchases, particularly if the building needs refurbishment or you're planning to convert part of it into apartments.
Add a typical 28-day auction completion deadline into the mix, and things can get complicated quickly.
The good news?
The right finance solution can help you complete on time and get your project moving.
What Is a Mixed-Use Property?
A mixed-use property combines commercial and residential space within the same building.
Common examples include:
Shops with flats above.
Commercial units with residential apartments.
Office buildings with residential accommodation.
Properties with plans to convert commercial space into residential units.
For property investors, these buildings can offer opportunities to add value, generate rental income and diversify their investments.
However, the combination of commercial and residential elements can make finding suitable finance more challenging.
Why Can Mixed-Use Properties Be Difficult to Finance?
There are three main challenges investors should be aware of.
1. Traditional Mortgage Restrictions
Not every lender is willing to finance mixed-use properties.
Lenders have different criteria depending on the property's commercial and residential proportions, condition and intended use.
If you're planning to convert part of the building or carry out significant refurbishment works, your options may be even more limited.
2. Refurbishment Requirements
If the property needs work before it meets a lender's criteria, a traditional mortgage might not be suitable at the outset.
You may need short-term funding to purchase the property and complete the necessary works before refinancing onto a longer-term mortgage.
3. Tight Auction Deadlines
When the hammer falls, the clock starts ticking.
Auction purchases typically require completion within 28 days, although the exact deadline depends on the contract.
Arranging finance, completing valuations and satisfying legal requirements within this timeframe can be difficult, particularly for more complex properties.
Miss the deadline, and you could face additional costs or risk losing your auction deposit.
Can Bridging Finance Help?
Bridging finance is often used when a property purchase needs to complete quickly or the property isn't yet suitable for longer-term mortgage finance.
Depending on the lender's criteria, it can help investors:
Complete an auction purchase within tight timescales.
Purchase properties requiring refurbishment.
Fund properties that don't fit standard mortgage criteria.
Carry out works before refinancing.
Bridge the gap between purchasing a property and securing longer-term finance.
The important thing is having a clear exit strategy.
If your plan is to refinance once the refurbishment is complete, you'll need to consider whether the finished property is likely to meet the relevant lender's criteria.
Bridging finance can provide flexibility, but it's still important to get the right funding in place before committing to a purchase.
How Much Can You Borrow Against a Mixed-Use Property?
The amount you can borrow depends on the lender, the property's value, its condition and your overall circumstances.
Loan-to-value (LTV) is one of the key factors lenders consider.
The actual amount available will depend on the lender's valuation and lending criteria, and the purchase price may not necessarily be the value used for lending purposes.
You'll also need to account for your deposit, legal fees, refurbishment costs and other expenses associated with the purchase.
How Do You Finance a Mixed-Use Property at Auction?
The key is to start exploring your finance options before the auction, rather than waiting until you've won the bid.
Before committing to a purchase:
Review the legal pack. Understand the property's title, use and any potential complications.
Assess the refurbishment. Establish what work is required and how it could affect your lending options.
Explore specialist lenders. Mainstream mortgages aren't always suitable for mixed-use or refurbishment projects.
Plan your exit strategy. Understand how you'll repay the bridging loan, whether through refinancing or another viable route.
Allow time for due diligence. Even specialist lenders need to complete their checks before releasing funds.
The earlier you understand your options, the better placed you'll be to move quickly when the right opportunity comes along.
You can read our full case study on how Propp Helped an Investor Secure £390,000 for a Mixed-Use Auction Purchase
£520,000 purchase price. A 28-day deadline. £52,000 at risk.
An experienced property investor secured a vacant mixed-use property at auction, with plans to convert the upper floors into residential apartments while retaining the commercial unit on the ground floor.
There was just one problem.
The investor had only 28 days to complete the purchase.
The Outcome
The purchase completed successfully within the 28-day deadline.
The investor protected their £52,000 deposit and could begin refurbishment works immediately.
Once the project is complete, the plan is to refinance onto a longer-term commercial mortgage, retaining the property as an income-producing mixed-use investment with the potential to increase its capital value.
The right finance helped turn a time-sensitive auction purchase into a project with long-term potential.
The Bottom Line
Mixed-use properties can offer fantastic opportunities for investors, but securing finance isn't always straightforward.
Refurbishment requirements, specialist lending criteria and tight auction deadlines can all make traditional mortgages difficult to arrange.
Bridging finance can help you complete the purchase, carry out the works and work towards longer-term funding.
The key is understanding your options and having a clear plan before you bid.
Need Finance for Your Next Auction Purchase?
Whether you're buying a mixed-use property, funding a refurbishment or looking for finance to meet a tight auction deadline, Propp compares specialist lenders to help you explore your options.
Compare auction finance quotes today and get your next property deal moving.
