What is a Semi-Commercial Mortgage?
A semi-commercial mortgage is a type of financing used to purchase or refinance properties that have both residential and commercial elements under the same roof. These are considered "mixed-use" properties.
Some common examples of semi-commercial properties include:
- A building with a shop/office on the ground floor and flat(s) above
- A pub or restaurant with living accommodation attached
- A house that has been converted to incorporate business premises
Semi-commercial mortgages are a hybrid between a standard residential mortgage and a commercial mortgage. They allow more flexibility than a regular residential mortgage for mixed-use scenarios.
Types of Commercial Mortgage
Owner-occupied Commercial Mortgages
These mortgages are for business owners who want to purchase or remortgage premises they will operate their business from. Examples include:
- Office buildings
- Retail shops
- Restaurants
- Warehouses
- Industrial units
Commercial mortgage lenders generally provide up to 75% loan-to-value (LTV) for owner-occupied mortgages.
Commercial Investment Mortgages
Commercial investment mortgages are for investors purchasing commercial property with the intention of renting it out to other businesses. Popular investment properties include:
- Multi-tenant office buildings
- Shopping centers/retail parks
- Industrial estates
- Hotels and leisure facilities
- Houses in Multiple Occupation (HMOs
Lenders typically cap commercial investment mortgages at around 65% LTV.
There are also:
- Commercial Remortgages - Remortgaging an existing commercial property can allow business owners to release equity, secure a better rate, or switch to a different type of commercial mortgage product.
- Commercial Bridging Loans - These short-term lending facilities, usually up to 12-18 months, can be used for purchasing commercial property, renovations, or raising capital until longer-term finance is arranged.
- Development Finance - Specialist development loans are designed for ground-up commercial property construction projects or large-scale renovations and conversions.
- Specific Asset Finance - Certain lenders offer niche commercial mortgage products tailored to specific asset classes like hotels, care homes, pubs, student accommodation, and more.
How Do You Value a Semi-Commercial Property?
Valuing a semi-commercial property requires looking at both the residential and commercial components separately. Lenders will assess the rental values and yields for each respective use. The overall property value is then calculated based on the combined valuations, often with a slight discount applied to account for the mixed-use nature of the property. Factors like the condition, location, scale of commercial operation, and ratio of residential vs commercial space will all impact the valuation.
How Much Deposit is Required for a Commercial Mortgage?
Most lenders require a minimum deposit of 25-30% of the property's value for a semi-commercial mortgage. However, some may go up to 75% loan-to-value (LTV) for low risk cases.
The size of deposit required depends on:
- Your personal circumstances (income, credit profile etc.)
- The lender's appetite for the property type
- The balance of residential vs commercial elements
Generally, a higher deposit makes you a lower risk borrower and opens up more competitive mortgage rates.
Is a Commercial Mortgage Cheaper?
The cost of a semi-commercial mortgage compared to a standard residential or commercial mortgage can vary significantly depending on several factors:
Interest Rates
Interest rates on semi-commercial mortgages are often lower than rates for full commercial mortgages. This is because lenders perceive semi-commercial properties as slightly less risky since they contain a residential element. However, semi-commercial rates are usually higher than standard residential mortgage rates. Lenders account for the mixed-use nature by charging a premium over home loan rates.
As an example, residential mortgage rates might be around 3-5%, while semi-commercial could be 4-7%, and commercial 5-8% or higher.
Lender's Appetite
Some lenders have a stronger appetite for semi-commercial mortgages and will price them more keenly compared to their residential and commercial products. This can lead to significantly better rates in some cases. Conversely, lenders that are more risk-averse towards semi-commercial may load higher pricing to account for the perceived complexity.
Property and Location
The specific semi-commercial property and its location can impact mortgage pricing. If it is a very desirable mixed-use property in a prime area, lenders may offer cheaper rates. More niche or tertiary properties may incur higher pricing.
Loan-to-Value
Higher loan-to-value (LTV) levels increase lender risk exposure, so rates tend to be lower at more conservative LTVs (e.g. 60% LTV vs 75% LTV).
Fees and Charges
Arrangement fees on semi-commercial mortgages are frequently higher than residential fees to account for the extra underwriting work required. Other fees like valuation, legal, and exit fees may also be higher for semi-commercial loans compared to standard home loans.
Borrower's Profile
Your personal circumstances as the borrower will be a key determinant. Factors like income, credit profile, age, experience and portfolio size can all influence the mortgage pricing you will receive across residential, semi-commercial and commercial products.
How a Broker can Help with a Semi-Commercial Mortgage
As pricing can fluctuate significantly between lenders and products, using an experienced commercial mortgage broker is highly advisable.
Brokers can compare the entire market to find the most competitively priced semi-commercial mortgage that fits your exact requirements and borrower profile. This professional advice ensures you do not overpay compared to the cheapest available options at any given time.
In summary, semi-commercial mortgage pricing sits between residential and commercial rates in most cases. But many variables can push the cost higher or lower, making professional broker advice invaluable.
How Much Can You Borrow on a Semi-Commercial Mortgage?
Most lenders will cap the maximum semi-commercial mortgage at 75% LTV (loan-to-value) of the property's valuation. So if the property is valued at £500,000, you could potentially borrow up to £375,000.
Your affordability and income will also be major factors in how much you can borrow. Lenders will conduct assessments to ensure you can afford the mortgage repayments, similar to a residential mortgage application.
The more rental income being generated by the commercial element, the higher the borrowing may be. But expected personal income must still meet minimum requirements.
Semi-Commercial Mortgage Lending Criteria
To qualify for a semi-commercial mortgage, lenders will typically require:
- A good credit history
- Stable income (employed, self-employed or rental income)
- Credible business plan if owner-occupying the commercial premises
- Minimum residential valuation (e.g. £75,000 in some cases)
- Minimum personal income (often £25,000 or higher for self-employed)
Age, nationality, and previous property experience will also be assessed. Some lenders are more flexible than others on certain criteria.
How to Get a Semi-Commercial Mortgage
Due to the more complex nature of semi-commercial lending, it is highly advisable to use an experienced mortgage broker. We can:
- Assess your eligibility and financing requirements
- Compare products across all lenders to find the best rates
- Advise on the valuation and underwriting process
- Handle the application and coordinate with the lender on your behalf
Naturally, this ensures you access the most suitable mortgage for your circumstances, maximising your chances of approval and avoiding rejection.
How Does a Semi-Commercial Mortgage Application Work?
Applying for a semi-commercial mortgage requires several additional steps compared to a standard residential mortgage. As an experienced broker specialising in these types of mortgages, Clifton Private Finance can guide you through the entire process:
Initial Consultation
We start with an in-depth consultation to understand your specific requirements and goals for the semi-commercial property. This allows us to advise on the most suitable mortgage options and lenders for your circumstances.
Fact Find and Affordability Checks
You will need to provide full details on your income, assets, liabilities, credit profile and existing property portfolio. We'll complete a thorough fact find to assess your affordability for the requested mortgage amount.
Business Plan Review
If you plan to occupy part of the semi-commercial property for a business venture, most UK lenders will require a credible business plan. We can review this and ensure it meets their underwriting requirements.
Collating Documentation
We will work with you to prepare all the documentation required, such as: Income verification (payslips, accounts, tax returns etc.) ID documentation, proof of deposit business plan and cash flow projections. And, property and lease details
Property Valuation
The lender will instruct a RICS qualified surveyor to value the residential and commercial elements of the property separately. This bespoke valuation is a key part of the underwriting process.
Submitting Application
Once all documentation is collated, we will submit the full mortgage application through our specialist lending channels, handling the entire process on your behalf.
Lender Underwriting
The lender's underwriters will scrutinise all details of the case, including your credit profile, income, property, and business plan if applicable. We act as your point of contact if any additional information is required.
Survey and Searches
If approved initially, the lender will also instruct property surveys, environmental checks, and local authority searches on the semi-commercial premises.
Mortgage Offer
Provided the underwriting and survey results meet the lender's criteria, a formal mortgage offer will be produced and sent to your solicitors.
Finalising the Purchase/Remortgage
We will work with your conveyancing team to satisfy any final requirements and conditions in the mortgage offer. Once everything is in order, we will set a completion date for either your purchase or remortgage to go through successfully.
Our experienced team at Clifton Private Finance has in-depth knowledge of semi-commercial mortgage lending criteria across the UK market. This expertise maximises your chances of approval while finding you the most competitively priced deal for your property goals.
How We Can Help
Unless you have an up-to-date knowledge of the financial services industry, you may benefit from speaking with professional brokers, such as us at Clifton Private Finance. We'll help you in your search for the right semi-commercial mortgage.
At Clifton Private Finance, we can provide you with a picture of the semi-commercial mortgages on the market and identify the best mortgage to meet your requirements.
Our specialist mortgage brokers can provide:
- Access to the whole market – We can compare most UK lenders prepared to provide semi-commercial mortgages.
- Terms of finance – We can arrange both short term and long-term lending options from 3 months to 30 years.
- 70% LTV – We can source semi commercial mortgages up to 70% of the property value (in some cases this can be higher)
- Finance within a short period of time – Contact us today and we can secure the funding you need swiftly.
If you need a semi-commercial mortgage, call us on 0203 900 4322 or complete our contact form above.
