Semi-commercial mortgages explained
What are semi-commercial mortgages?
Semi-commercial mortgages are property backed loans designed for property which is comprised of both residential and commercial elements.
They are available for a diverse array of properties and can be used to purchase or remortgage a property.
These loans are generally funded using a commercial mortgage lender and are treated in much the same way as a commercial mortgage.
What properties are classed as semi-commercial?
The banner of ‘semi-commercial’ covers a wide range of properties. Any property that comprises of both a commercial element and living accommodation will be classed as semi-commercial.
Some lenders charge lower rates for semi-commercial properties than are charged for fully commercial buildings. Where this is the case, there are sometimes splits in the ratio of residential to commercial space needed to secure the lower rate.
Another point that could exclude your property from being eligible, is where there is a single access to the property, meaning it could only be occupied by a single tenant or business owner.
In this situation, some lenders will only lend using their full commercial rates .
Why are mixed use properties such a popular investment?
The major lure for most investors is the increased yields available through semi-commercial investments. In many cases, the rental yield is almost twice as much as would be possible through a standard residential buy to let.
On top of that, as there is usually more than one tenant in the property, the risk of total loss of rent is significantly reduced. Where one tenant either leaves or fails to keep up their payments, other tenants are likely to still pay.
The other major advantage is that semi-commercial properties are exempt from the 3% stamp duty surcharge. This gives them a lower transaction cost when purchasing, when compared to residential investment properties.
Key product features
|Max LTV||Up to 75%|
|Interest rate||From 2.5%|
|Repayment type||Capital repayment, interest only or part and part|
|Interest type||Fixed or variable available|
|Acceptable security||Any commercial or semi-commercial property considered. Land accepted on a case by case basis|
- Loans from £25,000 with no maximum loan size
- Available to individuals, partnerships, LLPs, Ltd companies, offshore companies, foreign nationals and pension funds
- Minimum applicant age 18 years – no maximum age
- Available in England, Scotland, Wales and Northern Ireland
- Adverse credit accepted (on a case by case basis)
- Products with no early repayment charges available
Semi commercial mortgage criteria
Criteria at a glance
Every semi-commercial, or mixed-use property is different and as such, each application will be judged on its own merits. As a guide, we can usually offer the following:
1 Up to 75% Loan to Value (LTV).
2 Repayment or interest only.
3 Market leading rates from 2.5%.
4 Borrow from £25,000 – no maximum loan.
5 Terms from 5 years to 25 years.
6 All property types considered on their merits.
7 Semi-commercial investment or owner-occupied loans.
8 Adverse credit considered.
I’ve never owned commercial property before, will I be eligible?
We can fund first time commercial property owners, whether you’re looking to purchase for your business or as an investment.
We’re starting to see an uplift in first-time buyers who are looking to invest in semi-commercial property, which is something we can help with. Most funders will be cautious about lending to first-time buyers however, so restrictions may apply, particularly around your choice of property.
For inexperienced property investors, it may be easier to fund semi-commercial property with a bias in floor area toward residential.
Will I qualify for a mixed-use mortgage?
Although these properties can be trickier to fund than residential properties, we can help in most situations. Where you’re struggling to meet your banks criteria around experience, credit history or income, we may have more flexible funders who are happy to help.
We can also work with applicants who require funding personally, through a limited company, expats and foreign nationals.
Interest only vs capital repayment
Some lenders are happy to lend on either a capital repayment, or interest only basis. The option that’s best for you will come down to personal preference.
Capital repayment gives you certainty that your loan will be fully repaid at the end of the term, but will result in higher monthly payments.
Interest only loans are great for cash flow as you only pay the interest each month, and therefore the monthly payments are lower. This means that the full mortgage balance will remain outstanding at the end of the term, unless you choose to reduce the balance through overpayments.
As part of a wider investment strategy, or if cash flow is the most important factor, interest only borrowing can be advantageous. That said, this route will result in you paying more interest over the term of the loan, compared to capital repayment.
How much can I borrow?
We offer semi-commercial mortgages from £25,000 with no maximum loan amount. Regardless of the size of your application, we can usually help.
Loan to value
Lenders will usually allow you to borrow up to 75% LTV when buying or remortgaging a mixed-use property. Of course, as with other types of mortgage, the maximum loan may also be restricted by the lender’s affordability calculations.
Semi commercial mortgage rates & costs
Interest rates for mixed use properties start at 2.5% for the strongest applications, with rates increasing for smaller, or slightly weaker cases. Rates of 3-5% are common, and rates up to 7% not unusual where there is adverse credit.
Owner occupied applications tend to benefit from slightly lower rates than those offered on investment properties.
Fees and charges
The following fees are common on mixed use mortgage applications
Lender arrangement fee – This fee tends to be 1-2% of the loan amount. It is usually paid on completion of the mortgage application and can usually be added to the loan.
Broker fees – Many brokers charge fees for their services – often 1-1.5% of the loan amount. We don’t charge fees for loans over £100,000.
Legal fees – These fees vary depending on the size of loan and the solicitor used. These fees are usually paid in 2 parts. The first is a part payment upfront before the solicitors begin their work, with the remainder being paid when the application completes.
Valuation fee – Again, this fee varies depending on the value, type and location of the property. This fee is usually paid during the application process and can’t be added to the loan.
Stamp duty and other acquisition costs
VAT is also due on some mixed use property purchases. Where VAT must be paid, it can often be reclaimed. Where this is the case, we’re usually able to lend 100% of the VAT due in addition to your semi-commercial mortgage.
How to get a mixed use mortgage
The documents required when making an application
- A fully completed application form
- 3-6 months personal bank statements
- 3-6 months business bank statements (for owner-occupied applications)
- 2 years accounts (for owner-occupied applications)
- A copy of any leases or ASTs (for commercial investment applications)
- Assets, liabilities, income & expenditure information
Semi-commercial mortgages can usually be completed in around 6 – 12 weeks from the initial application. Of course, the timescales for each application can vary.
By ensuring you provide all the required information upfront, and any additional information as it is requested, you can cut down your application to the lower end of this scale.
What can I do to get a better deal?
The best deals are usually reserved for borrowers with clear credit histories, if you have suffered adverse credit, the first thing is to settle them.
Beyond that, choosing higher quality properties with strong tenants with usually result in a lower interest rate.
Finally, reducing the loan to value of your application can significantly reduce the rates offered by lenders. Lenders usually offer tiered rates at 55%, 65% and 75%, so if you’re just over one of these thresholds, you can get a much better deal by reducing the loan below it.
Who lends on semi-commercial property?
There are many lenders out there, and they can largely be broken down into smaller groups:
- High street banks – High street banks are still very active in the market and tend to offer the lowest rates to borrowers. The flipside to this is that criteria is strict, as are affordability rules. High street banks will usually want to see strong financial performance when lending to a business, long leases to strong tenants for commercial investments and clean credit history from applicants.
- Challenger banks – The rise of the challenger bank has been a major positive since the credit crunch. These lenders tend to be more flexible than high street banks and may overlook minor adverse credit. In addition, affordability rules may be more lenient and shorter leases acceptable for investment applications. Over recent years, the rates of challenger banks have reduced significantly, bringing them much closer to those of high street banks.
- Specialist independent lenders – There are other specialist lenders in the market who will lend against semi-commercial property. These lenders tend to be the most flexible and as such charge the highest rates. They will accept heavier adverse credit, very short-leases or poor-quality tenants and very relaxed affordability rules for business owners. When borrowing from these lenders, the maximum loan to value will usually be lower, around 65-70% of the property value.
Can I live in the residential portion of the property?
If you’re planning on living in a portion of a semi-commercial property and either working from, or letting the commercial element, your application will be FCA regulated. This will reduce the number of lenders willing to accept the application, however it is still acceptable to some.
Specialist advice is crucial, and we are highly experienced in this situation.
Do I need a semi-commercial mortgage if I run a business from home?
In most cases, this is not required. Where the business is using a large proportion of the property, or the property is a part commercial property, then a commercial mortgage may be required.
Standard residential properties with a home office used to run a business will usually be acceptable to residential mortgage lenders without issue.