Last reviewed on 5th October 2023 by Martin Alexander (Mortgage Advisor)
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, you will encounter problems. The mortgage you apply for must be suitable for your purchasing property.
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 mixed-use property with residential and commercial elements. This can also be referred to as a mixed-use mortgage and can be used for any tenure, whether freehold or leasehold.
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
Do I need a semi-commercial mortgage?
You’ll need a semi-commercial mortgage if the property you want to purchase has commercial and residential elements. Lenders need to know the exact details of the property they’re lending on. For instance, some lenders will only lend if over 40% of the property is commercial, whereas others will require 50% of the property to be residential.
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 will be declined. If the property you wish to purchase is completely vacant, its registered use would indicate whether it’s residential or commercial.
Some lenders may offer normal residential terms for properties that are part commercial, but this would be assessed case by case. In almost all cases, this is only possible if the commercial ratio of the property is less than 40%.
What mortgage will I need if my property has separate access?
If a property has separate access for both its commercial and residential aspects, some lenders will offer two individual mortgages. An example would be a property with front access to a commercial unit, with independent access for flats. 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. In my experience, this is rarely advised and should be avoided in most circumstances. Getting one mortgage with a single lender can save you from running into issues in the future.
What are the criteria for a semi-commercial mortgage?
To qualify, 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 scoring system. That being said, each of these factors will affect the outcome of your application.
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 with how much commercial space the property has.
If you don’t plan to run a business from the property, lenders will require a financial forecast of the potential rental returns you aim to generate.
Typical rates for mixed-use mortgages:
- Rates from 7%
- Lender arrangement fees from 0.75% – 2% of the mortgage amount
- Mortgage terms from 2-30 years
- Repayment and interest-only options are available
It is possible to obtain a higher LTV than 75% and sometimes 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 in other ventures generating an income.
The nature of the building will also affect the rates you’re offered. For instance, if you’re buying a pub, you’ll likely 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 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 you aim to occupy either the residential or commercial space, you’ll 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 interest-only options, even if you plan to reside in the building, whereas others won’t. Other lenders will offer longer mortgage terms, so rates can have a vast difference.
It’s always best to find the right lender according to your goals and circumstances instead of just finding one that will approve you. Finding a lender that suits your budget can allow flexibility in making your commercial purchase successful.
What documents will I need to apply?
Most lenders will require the following documents at the time of application:
- Photo identification, 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 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.
About the author
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.