Semi commercial mortgages

Semi commercial mortgage criteria and lending

Semi-commercial mortgage criteria turn on the balance between the commercial and residential parts of the property and the income each produces. Lenders assess the proportion of floor area and value in commercial use against residential use, the strength and length of the commercial lease, the quality of the residential tenancies, and the location and condition of the mixed-use building. A property that is mostly residential with a small commercial unit is often treated close to a residential investment, while one that is mostly commercial is underwritten as a commercial mortgage, and the criteria and pricing follow. Lenders will want to see the tenancy agreements, the rental income, the EPC and, on the residential side, usually an assured shorthold tenancy per flat. Many semi-commercial lenders lend to a limited company or SPV as well as to individuals and partnerships, with directors giving personal guarantees. Vacant possession, a weak commercial tenant or an unusual use can narrow the pool of lenders, which is where the case has to be placed carefully. We know which lenders fund semi-commercial and mixed-use property, how each treats the use split, and which will consider a first-time commercial investor, and we place the case accordingly. All criteria are indicative, vary by lender, borrower and property, and are not an offer of finance.

How much can you borrow on a semi commercial mortgage?

A semi-commercial mortgage is typically arranged up to around 70 to 75 percent loan to value, so the deposit is indicatively 25 to 30 percent of the property value, with the exact figure set by the lender, the use mix and the strength of the income. The loan is sized on the combined commercial and residential rental income against the lender's stress test, and an interest cover ratio is applied much as it is on buy to let, though commercial income is often stressed more conservatively than residential. The valuation is central: a semi-commercial building is usually valued on its investment value from the rental income, so a strong commercial tenant on a long lease and well-let flats above support a higher value and a larger loan. Where the commercial part is vacant or the income is thin, a lender may reduce the advance, and some cases are better funded with bridging loans first, then refinanced onto a term mortgage once the property is stabilised and let. Bridging finance also suits a semi-commercial purchase at auction or one that needs refurbishment, with the works funded much as they would be under development finance and the semi-commercial mortgage arranged as the exit. We model the income and the achievable loan before approaching lenders, using the buy to let mortgage calculator as a starting point for the residential element, so the semi-commercial mortgage goes to market at a level that will fund. The figures are illustrative, vary by lender and property, and are not an offer of finance.

Semi commercial mortgage rates and fees

Semi-commercial mortgage rates sit between residential buy to let rates and full commercial mortgage rates, and depend on the loan to value, the use mix, the strength of the income and whether the borrower is an individual or a limited company. A property weighted toward residential tends to price closer to buy to let, while one weighted toward commercial prices closer to a commercial mortgage. Expect a lender arrangement fee, often a percentage of the loan, a valuation fee that reflects the mixed-use inspection, and legal costs for a more involved title. Semi-commercial products are commonly offered on a five year fixed rate or a longer commercial term, sometimes with a variable margin over a reference rate, and an early repayment charge usually applies. Because rates move with the wider market and with the use mix, we quote current indicative ranges rather than headline figures. We disclose our broker fee in writing and quote the all in cost so cases can be compared properly, and the figures are not an offer of finance.

Semi commercial against commercial and residential property

The difference between commercial and semi-commercial property is the presence of a residential element. A commercial property is wholly business use, an office, shop, warehouse or industrial unit with no living accommodation. A semi-commercial or mixed-use property combines commercial and residential use in one building, such as a shop with flats above, and a residential property is wholly a home. That mix is why a semi-commercial mortgage is underwritten between the two: the residential income behaves like buy to let and the commercial income like a commercial let. For an investor, semi-commercial property can carry advantages over pure commercial, since the residential flats add income and can steady the case if the commercial tenant leaves, and it is often treated differently for stamp duty than a purely residential purchase, though tax is a matter for your adviser and we do not give tax advice. Semi-commercial investment lending arranged for landlords and companies is predominantly unregulated and falls outside the Financial Conduct Authority's regulated mortgage perimeter; where a case would be a regulated mortgage contract, for example an owner occupier living in part of the building, we refer it to an authorised firm. Alongside semi-commercial mortgages we arrange the wider product range that sits around a mixed-use deal: commercial mortgages, bridging loans, development finance and development exit for a scheme being built out or converted, plus bridging loans for a fast or auction purchase and full commercial mortgages where a property is wholly commercial. We also arrange HMO, multi unit freehold block, portfolio and bridge to let finance, so a semi-commercial building can be funded as part of a wider portfolio.