What is a semi-commercial mortgage​?

A semi-commercial mortgage is a loan that’s specifically designed for a property consisting of both commercial and residential aspects. Typical examples of mixed-use properties include pubs with a self-contained residential space, guest houses that include the owner’s accommodation, shops with flats above them, buildings comprised of self-contained flats and offices, holiday parks with residential accommodation and HMOs that include a retail area. As these types of properties don’t fit lenders’ standard terms for commercial or residential mortgages, they require a specialised type of mortgage.

Are there any restrictions for semi-commercial mortgages?

Even if the property has considerably more residential floor space than commercial, it is still considered to be mixed-use. This is regardless of the percentage, such as 15% commercial use and 85% residential use. An application for a residential mortgage will be declined once the commercial features of the property are highlighted.

A semi-commercial mortgage is handled in the same way as a commercial mortgage so you deal with a commercial mortgage lender rather than a residential mortgage lender. The exception to this can be if the residential area has a separate entrance from the commercial space. Some lenders may offer different mortgages in this case.

Semi-commercial mortgages are granted for both freehold and leasehold properties.

Lenders look more favourably on applicants who’ve previously owned commercial property. This can include having owned at least two buy-to-let properties for a minimum of 2 years or having had experience with letting or running commercial premises. However, that doesn’t mean you can’t get a semi-commercial mortgage if this isn’t the case. Many lenders are willing to lend to first-time commercial property buyers although the rates may be slightly higher. Speak to a commercial mortgage broker to help with your application and find the right lender for your circumstances.

How much can you borrow?

Lenders usually offer up to 75% loan-to-value (LTV) when you buy a semi-commercial property. It may be possible to get a higher LTV ratio, even 100%, but you’d need to provide extra security, such as another asset or property with equity in.

For a loan of less than £25,000, a business loan is a better option for you as it is unsecured. However, a semi-commercial mortgage is advisable for a loan higher than this amount. It’s not really economical to borrow less than £50,000, though, due to the costs involved and you should be aware that some lenders insist on a minimum loan of £75,000.

The types of semi-commercial mortgages available

There are two types of semi-commercial mortgages available. One is an owner-occupied commercial mortgage and the other is a commercial investment mortgage. This means you can buy a property to work from or you can buy a property as an investment to rent out.

What are the rates?

Just like commercial mortgages, rates for semi-commercial mortgages are determined on an individual basis. If you intend to run your business from the property, such as an office in Bexleyheath, the lender will need to assess your business plan. To purchase the property as an investment, such as a buy-to-let in Bexley, you will need to produce a financial forecast detailing the expected rental income. Generally, you tend to be offered slightly lower rates for an owner-occupied commercial mortgage than for a commercial investment mortgage.

The more deposit you pay, the more favourably the lender will look upon you and hopefully offer you better rates. Most semi-commercial mortgages have variable rates although some lenders will agree to fixed rates.

When occupying part of the property, you’ll probably benefit from a repayment mortgage. You may be offered fixed repayments and this helps with budgeting. You may be given an interest-only option, particularly for an investment, and this allows for lower monthly repayments. An interest-only option could be for a specific period or the duration of your mortgage term.

The term also affects the rates you’ll pay, with semi-commercial mortgages usually ranging between 3 and 30 years. If you prefer a shorter-term loan, a bridging loan may be a better option for you.

The criteria for a semi-commercial mortgage

The lender will need to assess your application, taking into account:

• The amount of deposit you can pay
• Your credit rating
• Your affordability
• Your trading history
• The viability of the investment

Don’t worry if you have bad credit as many lenders offer semi-commercial mortgage products to applicants with adverse credit.

How long does a semi-commercial mortgage take to complete?

The timescale varies for each application but you’re typically looking at 6 to 12 weeks for a semi-commercial mortgage to complete. To help shorten the completion time, prepare all of your documentation in advance and provide any additional information that’s requested as quickly as possible. Some applications can go through within 30 days.

Get specialist advice

Before you do anything else, speak with a professional commercial mortgage broker about the ins and outs of semi-commercial mortgages. The broker will have an in-depth knowledge of the market and understand the different lenders’ criteria. He or she can provide you with expert and impartial advice to help you make the right decision.

Finding and applying for a semi-commercial mortgage is time-consuming and complicated. Your broker will tailor your case and present it to the best commercial mortgage lender for your needs. He or she will also have access to new products being offered and will endeavour to find the best rates and terms for you.