£7.4m Mixed-Use Portfolio Refinance Across Surrey, Guildford and Sevenoaks

The situation

The clients were a husband and wife partnership who had built the portfolio over fifteen years, buying high street property in commuter towns where the flat above paid a meaningful share of the income. Eight of the nine assets were the classic shape, a trading shop on the ground floor with one or two flats above, spread across Guildford town centre, two Surrey villages and Sevenoaks. The ninth was a small office building with three flats on the upper floors.

Aggregate value was £11.4 million. Aggregate debt was £6.1 million spread across five loans from four lenders, written at different times, at different rates, with different renewal dates. Two loans were on lender variable rates that had drifted well above the market, one had eighteen months left on its term, and every asset purchase over the past decade had been financed with whatever was quickest at the time rather than what fitted the portfolio.

Five loans across four lenders is not a portfolio strategy, it is an admin burden with interest attached. The clients were spending more time managing lenders than managing tenants.

Why the existing arrangement had to go

The renewal dates were the real problem. With five facilities maturing at different points over the next four years, the clients faced a rolling sequence of revaluations, arrangement fees and legal costs, and each renewal was a fresh chance for a lender to reprice or retreat from the sector. Semi-commercial appetite moves around, and what we have seen over the years is that a lender keen on shops-with-flats in one year can be quietly closed to them two years later, leaving the borrower renewing into a market that no longer wants the asset.

There was also trapped equity. The portfolio was sitting at 53% aggregate gearing, but unevenly, with two assets almost unencumbered and two others geared to the point where their individual lenders would not advance another pound. A single facility assessed on the aggregate releases that imbalance.

The refinance raised £1.3 million of net new capital on top of redeeming the £6.1 million of existing debt, which the clients earmarked for their next purchase.

The structure

We placed the whole portfolio with one commercial lender as a single cross-collateralised facility, £7.4 million over five years, interest only, at a blended 65% LTV. First charges across all nine assets, one valuation exercise, one set of legals, one renewal date.

The underwriting shift that makes this work is aggregate interest cover. Assessed individually, two of the nine assets would have failed a standalone interest cover test, one because the flat above was between tenancies at the point of application and one because of the short lease issue covered below. Assessed on the aggregate, the portfolio's combined rent covered the facility interest 1.9 times, and the lender was comfortable because the covenant is the portfolio, and the strength of seven assets carries the temporary weakness of two. In my experience this is the single biggest advantage of portfolio lending for semi-commercial landlords, and it is the one most of them have never had explained to them.

We also negotiated substitution rights into the facility, so the clients can sell an asset and substitute another of equivalent value and income without a full refinance, subject to lender consent on the incoming property. For an actively trading portfolio, that clause is worth more than a few basis points off the rate.

The short lease that needed carving in

One Guildford asset had a commercial tenant with fourteen months left on the lease and no agreement yet on renewal. A short unexpired commercial term is one of the first things a semi-commercial lender's credit team will pull on, because the valuation and the income both wobble if the tenant walks.

Rather than let the lender discount the asset to a defensive value, we carved it into the structure explicitly. The facility was documented with a modest cash margin retention against that single asset, releasable on completion of a renewed lease of five years or more, and we put the clients' letting agent's report on local tenant demand in front of credit alongside the tenant's twelve-year trading history in the unit. The tenant renewed for ten years four months after completion and the retention released in full.

My view on cases like this is simple. Flagging the weak point to the lender before they find it, with a structure already proposed, gets a better outcome than hoping the valuer does not notice, because the valuer always notices.

How it completed

The heavy lifting on a nine-asset refinance is coordination rather than credit. One valuer was instructed across all nine assets to keep the methodology consistent, and the legal work ran across five redemptions, nine title reviews and a stack of tenancy documentation, some of which had not been looked at since the assets were bought. Two flats were on out-of-date tenancy agreements that needed regularising before completion, which is entirely normal on a portfolio built over fifteen years, and better fixed at refinance than discovered at sale.

First enquiry to credit-approved terms took three weeks. Completion took a further eleven weeks, with the tenancy paperwork the main drag. The clients redeemed five loans on the same day.