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Mortgages for semi-commercial property

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HomeCommercial FinanceMortgages for semi-commercial property

Mortgages for semi-commercial property

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Last reviewed on 18th July 2021

Choosing the right mortgage type for your property can be crucial and if you’re buying a semi-commercial property, you’ll need a suitable mortgage to go with it. The good news is that mortgage lenders do offer mortgages for semi-commercial properties.

Make an enquiry to speak to a commercial specialist. Our advisors are experienced in providing semi-commercial mortgages and can answer any of your questions.

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What is a semi-commercial mortgage?

A semi-commercial mortgage is used to purchase a property of mixed-use. For instance, a property that has both residential and commercial features is classed as semi-commercial or mixed-use property.

If you apply for a regular commercial or residential mortgage, then you will encounter problems. The mortgage you apply for needs to be suitable for the property you’re purchasing.

A semi-commercial mortgage can be used for any tenure, whether freehold or leasehold.

Examples of mixed-use properties would include:

  • Commercial units with flats
  • Guest homes that are owner-occupied
  • Pubs with self-contained accommodation
  • Buildings with self-contained offices and flats
  • Businesses ran solely from home

Do I need a semi-commercial mortgage?

If the property you’re aiming to purchase has both commercial and residential elements, then you will need a semi-commercial mortgage. Lenders need to know exactly what they’re lending on.

If you’ve applied for a residential mortgage, a mortgage survey would quickly establish that the property has commercial elements. For this reason alone, your application would be declined.

If the property you wish to purchase is completely vacant, its registered use would indicate whether it’s residential or commercial. Furthermore, the ratio of commercial to residential has no bearing.

Even if the property was 10% commercial and 90% residential, you’d still require a semi-commercial mortgage. If the self-contained elements have separate access, then some lenders may make an exception.

What if my property has separate access?

If a property has separate access for both its commercial and residential aspects, then some lenders will offer two separate mortgages.

For instance, if the property has front access to a commercial unit, with rear separate access for flats, then some lenders may offer two different mortgages.

On the other hand, using two different lenders for parts of the same building can cause issues. This is because the building itself may have shared aspects, such as roofing.

Semi-commercial mortgage rates

Semi-commercial mortgages are typically offered up to 75% loan to value. Although the mortgage would be semi-commercial, it’s still treated as a commercial mortgage. As a result, lenders will assess your business plan in relation to commercial space.

If you don’t plan to run a business from the property yourself, lenders will require a financial forecast of the potential rental returns that you aim to generate.

Typical mortgages rates for semi-commercial property include:

  • Rates from 2.5% above bank rate
  • Lender arrangement fees from 0.75% – 2% of the mortgage amount
  • Mortgages terms from 2-30 years
  • Repayment and interest-only options available

It is possible to obtain a higher LTV than 75% and in some cases a 100% mixed commercial and residential mortgage. This can only be done by offering security to the lender in the form of equity from another property or an existing business. This can be particularly useful when you have funds tied up in other ventures that are generating an income.

The nature of the building will also have an effect on the rates you’re offered. For instance, if you’re buying a pub, it’s likely you’ll need a 30% deposit at least.

ask a mortgage broker

How to apply for a semi-commercial mortgage

Mixed commercial and residential mortgages are structured according to whether you’re solely investing or want to occupy the property. As there are so many potential variables, you can consult an advisor for a tailored answer on how a loan may be structured for the type of finance you need.

Depending on your circumstances, you may be offered an interest-only option, especially if your only aim is to invest. If your aim is to occupy either the residential or commercial space, you’ll more than likely require a repayment mortgage.

Semi-commercial lenders offer a multitude of varied products. Some lenders may offer you interest-only options, even if you plan to reside in the building, whereas other lenders won’t. Other lenders will offer longer mortgage terms and as a result, rates can have a vast difference.

It’s always best to find the right lender according to your own goals and circumstances, as opposed to just finding a lender that will approve you. Finding a lender that suits your budget can allow flexibility in making your commercial purchase a success.

What documents will I need to apply?

Most lenders will require you to produce the following documents at the time of application:

  • Photo ID, such as a passport or driving licence
  • Proof of address, such as a utility bill
  • Bank statements to show your income (or accounts/SA302s/P60)
  • Details of existing property investments (if any)
  • Any leases for the building (if any)

It’s also a good idea to have your credit reports ready. This is especially true if you feel there may be some issues with your credit score.

Collating as much information about other property investments will also help your application. For instance, if you have a property portfolio, your lender may ask to see copies of the tenancy agreements.

Semi-commercial mortgage specialists

Be sure to shop around when trying to secure the right type of finance for your commercial ventures. With new products being offered daily, finding the right deal can work wonders for your project.

If you’re currently running a business, finding the time to engage with multiple lenders can be difficult. Financial decisions should never be rushed, as the wrong deal could break your investment.

Our expert advisors specialise in semi-commercial mortgages and can search the entire market, finding you the best-suited deal. Having access to every lender is one advantage, but the experience of knowing each lender’s criteria is paramount in ensuring your application the best chance of approval.

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About the author

Mortgage Advisor | More Articles

Martin is a senior mortgage advisor and has held a CeMAP qualification for over 15 years while also completing an MBA in Global Banking & Finance.