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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 9th February 2022

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.

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.

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.

What is a semi-commercial mortgage?

A semi-commercial mortgage is used to purchase a property of mixed-use, having both residential and commercial elements. As a result, this mortgage type can also be referred to as a mixed-use mortgage.

Semi-commercial mortgages would be suitable for the following properties:

  • 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

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

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 the exact details of the property 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.

It’s also important to note that the ratio of commercial to residential has no bearing. For instance, 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 mortgage will I need 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. Nonetheless, a semi-commercial mortgage would still be suitable.

In comparison, 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.

What is the criteria for a semi-commercial mortgage?

To qualify for a commercial mortgage, your assessment will be based on the following criteria:

  • Affordability – Are you able to repay the mortgage based on your income?
  • Deposit amount – Higher deposits can improve your mortgage chances
  • Credit score – Good credit scores will support your mortgage, but having bad credit can make approval difficult
  • Your proposal – Lenders will assess the credibility of your proposal, such as whether your investment is viable

Each lender has unique criteria and will assess mortgage applications based on their own scoring system. That being said, each of these factors will affect the outcome of your application.

ask a mortgage broker

What rates are offered for semi-commercial mortgages?

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 rates for mixed-use mortgages:

  • 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.

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.

What type of semi-commercial mortgage will I need?

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 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 or accounts to show your income
  • Details of existing property investments
  • Any leases for the building

It’s also advised to have your credit reports ready, especially if you’ve experienced issues with credit within the last six years. Gathering 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.

Speak to a semi-commercial mortgage specialist

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 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 has 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.