Should You Get A Semi-Commercial Mortgage? A Guide

If you want to own a building with a shop on the ground floor and flats above, you’re the perfect candidate for a semi-commercial mortgage. 

This option is also great for investors looking to buy such mixed-use properties and for developers aiming to create spaces that blend living and commercial areas. 

Curious?

This article explores everything you need to know about semi-commercial mortgages in the UK.

What is a Semi Commercial Mortgage?

A semi-commercial mortgage helps you buy or remortgage properties used for both business and residential purposes. This type of mortgage bridges the gap between residential and commercial lending.

In the UK’s property market, these mortgages offer great flexibility. They let property owners make the most of their buildings, combining their business and living spaces. 

This makes semi-commercial mortgages a key option for savvy property owners looking to boost their investment.

How Does Semi-Commercial Mortgage Work?

Pretty similar to residential mortgages, but lenders usually take into account the commercial part of the property. 

This means they will count both the rental income from the residential and the commercial part of the property.

Which Properties Are Classed as Semi-Commercial?

In the UK, several types of properties are considered semi-commercial, including:

• Buildings with a shop on the ground floor and flats above.
• Offices with residential apartments on the upper levels.
• Pubs or restaurants that have owner or staff accommodation attached.
• Small business units with an adjoining residential property.
• Retail spaces with a workshop or storage area and a living space.

These properties mix business with living spaces, making them unique investments. If you own or are looking to buy such a property, a semi-commercial mortgage might be what you need.

But, before we dive into the ‘what you can afford’ let’s get you in touch with the factors that affect your eligibility and rates.

Do You Qualify?

Getting ready for your mortgage application is easier when you know what lenders are looking for. 

Here’s what lenders typically look for:

• Prove you can manage the mortgage payments, even when the business space isn’t rented out.
• Save up a big deposit, usually 25% to 40% of the property’s cost.
• Show a clear business plan and any experience you’ve got in the business world.
• Make sure your investment plan sounds solid and realistic.
• Keep your credit history clean and clear of issues.
• Choose a property that’s in great shape and a good location.
• Have a clear plan for paying off the mortgage, like selling the property or getting a new mortgage.
• You must be over 18 years old or of legal age in the UK.

Additionally, consider the property’s layout. For example, if it has only one entrance, suggesting it’s suitable for just one tenant or owner, you might usually qualify for fully commercial properties. 

However, these qualifications are not set in stone. Each lender will have a different way of assessing your application. The most important thing is you present yourself in the best way possible.

To do this, we recommend using a commercial mortgage broker. They can help you make informed decisions, introduce you to a wide range of lenders, and negotiate for a better deal.

How Much Can You Borrow?

When you’re looking at semi-commercial mortgages in the UK, how much you can borrow mainly depends on a few straightforward things.

First, lenders look at the property’s value. Generally, you can borrow up to 70% to 75% of the property’s price. This means if you’re eyeing a property worth £100,000, you could borrow up to £70,000 to £75,000.

Next, they consider your income and the potential income from the property. They want to make sure you can cover the mortgage payments, especially if the commercial part isn’t bringing in rent for a while.

Your credit history also plays a part. A cleaner credit history can help you borrow more.

To figure out exactly how much you might borrow, a semi-commercial mortgage calculator is super handy.

Just input the property price, your deposit, and some details about your income, and it’ll give you an estimate. This tool is a great first step in planning your property investment journey.

[Embedded Commercial Mortgage Calculator]

What Are the Current Semi Commercial Mortgage Rates?

Semi-commercial mortgage rates in the UK don’t have a one-size-fits-all figure. 

But, to give you a clearer picture, interest rates for top-notch applications can start as low as 2.5%. However, for less ideal scenarios, common rates range from 3-5%, and in cases of adverse credit, rates can climb up to 7%. 

If the property is owner-occupied, you might enjoy slightly lower rates compared to investment properties.

These rates are also influenced by the Bank of England’s base rates, your financial health, and the property’s earning potential.

The better your financial situation and the lower the perceived risk, the more favourable the rate you’re likely to secure. 

What Are The Fees For Semi Commercial Mortgages?

Rates are not the only thing you need to eye up, the fees play a big part in the overall cost too. 

Here’s a rundown:

• Arrangement Fees – This is what the lender charges for setting up the mortgage. It’s usually between 1-2% of the loan amount. You’ll typically pay this when the mortgage completes. It can often be added to your loan total, spreading the cost over the term of the mortgage.
• Valuation Fees – Before lending you money, the lender will want the property valued. This fee covers that cost. It varies depending on the property’s size and type and is paid upfront during the application process.
• Legal Fees – You’ll need a solicitor to handle the legal side of things, and this fee pays for their services. It varies widely but expect to pay in two stages: a part upfront, and the rest upon completion.
• Broker Fees – If you use a broker to find your mortgage, they may charge a fee, often around 1% of the loan amount. Not all brokers charge this, especially on larger loans.
• Stamp Duty – This tax applies to property purchases. The amount depends on the property’s price and its use (residential, commercial, or mixed).
• VAT – Some mixed-use properties might incur VAT. It’s a complex area, but in some cases, you can reclaim the VAT paid.

Who Offers Semi  Commercial Mortgages in the UK?

In the UK, a variety of lenders offer semi-commercial mortgages, catering to those looking to invest in mixed-use properties. It’s worth noting this list isn’t exhaustive, but it’ll give you a good starting point:

• Yorkshire Building Society
• ABC Finance Ltd.
• Interbay
• Ecology Building Society
• Hampshire Trust Bank

Not all lenders are keen on semi-commercial properties, so finding one that understands your needs is key

Moreover, each lender has their own criteria and rates, so it’s smart to shop around or use a broker to find the best deal for your circumstances. 

Can I Get a Residential Mortgage on a Commercial Property?

It’s tricky. 

Most lenders are hesitant because the risks and values are different from fully residential homes. 

If part of your property is for living and you want to turn it into a residential space, you need to show it’s a proper living area, not just a small part of a commercial space. 

You’ll also have to deal with legal stuff like planning permissions and maybe making changes to the property. 

Plus, lenders will take a close look at your money situation and how stable your business is. 

While it’s not impossible, you’ll need a solid plan and some advice from a commercial mortgage broker to make it happen.

Should You Get a Semi-Commercial Mortgage?

It depends on your situation. If the advantages beat the disadvantages for you, then it’s probably a good shout. 

Here’s a look at the pros and cons to help you weigh up:

Pros

• Flexibility in using the property for both business and residential purposes.
• Potential for higher rental income compared to purely residential properties.
• Some tax benefits are due to the mixed use of the property.
• Diversify your investment portfolio, potentially reducing risk.

Cons

• Generally requires a higher deposit than residential mortgages.
• Can be more complex to manage, with different regulations for residential and commercial tenants.
• Potentially higher interest rates due to perceived increased risk.
• Limited choice of lenders, as not all offer semi-commercial mortgages.

How to Apply for a Semi-Commercial Mortgage?

Applying for a semi-commercial mortgage involves a few steps. Here’s a simple guide:

1. Check your eligibility

Before anything, understand what lenders are looking for—strong financials and a viable business plan for the property. This initial step sets the foundation for your application.

2. Gather Your Documents

You’ll need several documents, including:

• A fully completed application form.
• Personal bank statements from the last 3-6 months.
• Business bank statements and accounts for the last 2 years, if you’re applying for an owner-occupied mortgage.
• Any leases or Assured Shorthold Tenancies (ASTs) for commercial investment mortgages.
• Details on your assets, liabilities, income, and expenditure.

3. Find a broker

A broker experienced in semi-commercial mortgages can be invaluable. They can help match you with the right lender, offer advice on your application, and even negotiate terms on your behalf.

4. Choose a Lender and Submit Your Application

Once you’ve found the right lender, fill in their application form thoroughly and submit it along with your documents. Your broker can help you in this process.

Make sure to provide accurate and complete details to avoid delay.s

5. Go through the valuation

The lender will arrange for a valuation of the property to assess its market value and income potential. This step is vital for determining how much they’re willing to lend you.

6. Wait for Approval

After the valuation, your application will be reviewed in detail. 

This process can take between 6-12 weeks, depending on the complexity of your case and how quickly you provide any additional information requested.

Tips To Get a Better Deal

Securing a favourable deal on your semi-commercial mortgage involves a few strategic moves:

• Improve Your Credit Score. Before applying, make sure your credit history is as clean as possible. Clear up any outstanding debts or inaccuracies on your credit report.
• Opt for a Larger Deposit. If you can afford it, offering a larger deposit can significantly reduce your loan-to-value ratio, potentially lowering your interest rate.
• Choose Quality Properties. Properties in good condition and prime locations, or those with reliable tenants, are viewed as less risky by lenders and can secure better terms.
• Negotiate. Don’t accept the first offer. Use your broker or negotiate yourself for better rates or terms based on your financial strength and the property’s potential.
• Timing. Keep an eye on the market. Applying for a mortgage when interest rates are low can save you a significant amount over the term of your loan.

The Bottom Line

There you have it! You’re all covered up.

Paying for a mortgage is a huge commitment. Before you apply, make sure you know what you’re getting into, including the terms and the affordability.

So, round up your paperwork, have a good look at your finances, and decide if now’s the right moment for you.

Aside from this, finding a lender that suits your needs with the best rates is crucial.

If all this sounds a lot, you have the option to partner with a good commercial mortgage broker. 

They can walk you through everything we’ve discussed – from the nuts and bolts of semi-commercial mortgages and what lenders are after, to how much you can borrow and the application process. They’re the experts who can unlock invaluable insights and snag the finest deal for you.

Ready to take the next step? Reach out to us. We will connect you with a top-notch commercial mortgage broker for a free, no-obligation consultation.