Semi-Commercial Mortgages

What is a semi commercial mortgage?

A semi commercial mortgage is the loan you would take to purchase or remortgage a property that is considered ‘mixed-use’. Put simply, a property that has both a residential and a commercial space.

What is a semi commercial property?

A semi commercial property is a premises that is comprised of both residential and commercial space. You might more commonly hear it referred to as a mixed-use property.

Some examples of the types of property that would be considered as semi-commercial or mixed use would be;

• Off-license with flats above
• Pub with built-in accommodation
• Owner occupied AirBnB
• Restaurant/take-away with flats above
• Any business ran from your home

Can you have a commercial mortgage on a residential property?

If you’re talking about your bog-standard residential property, then no. You can stick with your standard residential mortgage and enjoy the lower interest rates that come with that.

However, there are cases where you would need a semi-commercial mortgage on a residential property. If you run any business operations from your home this would be considered commercial activity and would require a more specialist mortgage.

For example, if you have an at-home beauty clinic.

If you’re unsure whether you need a commercial mortgage your best bet is to speak to someone who knows – aka, us!

Who is eligible for a semi-commercial mortgage?

If you are a business owner that wants to purchase or remortgage a mixed-use property, you will need a semi-commercial mortgage. The same applies for investors who let out mixed use property.

Your actual eligibility will depend entirely on your personal circumstances, financial situation, credit profile and business performance. You’ll need to speak to a commercial mortgage broker to find out whether you are eligible.

Affordability calculations have a significant bearing on how much you are able to borrow. Commercial mortgage lenders would need to be satisfied that the mortgage payments are comfortably affordable based on your EBITDA (earnings before interest, tax, depreciation and amortisation).

In simple terms, your business must be sufficiently profitable.

Can I live upstairs in the mixed-use property?

Yes, you can live in the residential part of your semi commercial property. This will have implications on the loan though as it would make it a regulated transaction which will limit the number of lenders you have the choice of.

Do I need planning permission to convert the mixed-use property

It depends on whether you want to make external structural changes to the property such as changing windows. Recent changes to permitted development rights allow you to convert mixed-use property under class E to residential without the need for full planning permission (subject to several conditions.)

What does Class E cover?

• Retail shops
• Restaurants and cafes
• Offices
• Banks, travel agents & estate agents
• Light industrial units
• Medical or health services
• Creches & day nursery
• Indoor sports venues

If your property falls under any of these categories you may be able to convert the premises under permitted development rights.

However, you will need to demonstrate to the local planning authority that the proposal will not have a negative impact on transport & highways, contamination, flood risk, noise and natural light of the area.

What if I want to convert the commercial property to fully residential?

Crack on! Thanks to permitted development rights you can convert many classes of commercial property to residential without the need for full planning permission. If you want to make external structural changes like changing a window then you will need planning permission.

What is the process for getting a semi commercial mortgage

The first thing you need to do is speak to a qualified and experienced commercial mortgage broker. Commercial mortgages are a specialist finance product, so standard brokers will not have an understanding of the market and will be unable to give you quality advice.

Your commercial broker will speak to you about your situation and requirements and then prepare an application for the most appropriate lenders. You will need to provide information about both your personal and your business finances.

Much like a traditional mortgage, once your application is in and signed, its over to the broker to liaise with the lender, solicitor and valuers to complete your application.

What do commercial lenders require for a semi commercial mortgage

The application process varies from lender to lender but there are a few things that you can be sure you’ll be expected to provide

• Personal bank statements (usually 3-6 months)
• Business bank statements (usually 3-6 months)
• Owner occupiers will need to provide 2 years of accounts to demonstrate the business is sufficiently profitable
• Income and expenditure

Can I get a semi-commercial mortgage with 20% deposit?

No. Most commercial mortgage lenders require a 25% deposit at the very least. You typically have to raise a much higher deposit than you would for a residential mortgage. The total deposit you’ll be required to put down will depend on a number of factors, including the type of business, your credit profile and your balance sheet.

To get an accurate idea of the deposit you’ll need, speak to a commercial broker.

What fees are charged on a semi commercial mortgage

Valuation fee - You’ll need to pay a valuation fee which typically will cost more than you’d see on a residential mortgage because the report is so much more extensive. The cost of your valuation will also depend on the value of the property; the higher the value, the higher the fee.

Lender arrangement fee – Commercial mortgage lenders charge a fee to underwrite the loan. This is charged towards the end of the mortgage process and ranges from 1% to 2% of the loan amount.

Broker fee – Your commercial broker will charge a fee for sourcing and administrating the mortgage. This is usually a fixed amount and our fees start from £395 and increase depending on the complexity of the case.

Legal fees – You are liable to pay both your own legal fees and the commercial lenders legal fees.

What is a good rate for a commercial mortgage?

Commercial mortgage interest rates are higher than residential rates because they’re deemed to be higher risk. However, the actual rate you’ll pay can vary from 5% all the way up to 12%, although it’s incredibly rare that we are unable to find a suitable commercial mortgage lender for your circumstances that would charge as much as the higher rate.

Your commercial mortgage interest rate will depend on your industry, loan amount, credit profile and business accounts so you really can’t get a good idea of what rate to expect unless you speak to one of our commercial mortgage brokers.

Who are the best semi commercial lenders?

There are plenty of high-street banks that you will be familiar with that offer commercial mortgages. However, the downside of using a high-street bank is they are typically much stricter on criteria and prefer to work on straight-forward cases. This is where your challenger banks come in; lesser known but equally reputable and experts in their field.

You’ll recognise the household names such as Barclays, Lloyds, Nat West and Yorkshire Building Society on our panel, but we also have top commercial mortgage lenders such as Allica Bank Interbay Commercial.

You should always compare commercial mortgages to get an idea of what it could cost you, and speak to a specialist broker who will be able to advise you on the best direction for your circumstances. You can make a commercial mortgage comparison right here at propp!

How long can you get a commercial mortgage for?

Most commercial lenders offer a term of up to 25 years in line with residential mortgages. Some even stretch up to 30, but you’ll likely see higher rates and more stringent terms due to the reduction in choice.

If you wanted a much shorter term, such as a 2-year commercial mortgage you would need to be looking at a commercial bridging loan. Lucky for you, you’re still in the right place and can compare these rates on our bridging comparison tool.

Are semi-commercial mortgages regulated?

Typically, most commercial mortgages are unregulated. However, if more than 40% of the property is classed as residential then this would be considered a regulated finance product. This does mean that less lenders will consider your application than on a pure commercial transaction, however this shouldn’t stop you from getting the semi-commercial mortgage you require.