Semi Commercial Mortages

A semi-commercial mortgage is a mortgage for a property with both residential and commercial use, for example, a shop with a flat above it. Other examples of semi-commercial properties include:

Pubs that include residential living spaces let out on an AST basis
Offices and residential accommodation
Parades of shops with residential flats above

Semi-commercial mortgages are available for property investors or business owners looking to occupy the commercial element of the building and let out the residential part of the property.

What properties are semi-commercial?

Semi-commercial properties are properties that have commercial and residential usage.
There are instances where certain properties have a higher percentage of residential floor space, however you will still need a semi-commercial mortgage. However, there are some exceptions to this rule:

• If the residential portion of the building has its own separate access and bypasses the commercial part of the property then you could take out a residential and a commercial mortgage for the separate areas. Subject to the residential property being held on its own legal title.
• Lenders have different views on the classification of semi-commercial and commercial mortgages. Some work by a 60/40 rule based on the square footage of the property while some use the 60/40 rule based on the monetary value of the commercial/residential space. Whereby at least 40% of the property must be residential however some lenders will allow up to 60%.

At Coreco Commercial we offer both commercial and semi-commercial mortgages so if you’re unsure just get in touch with us and we help you find the right type of mortgage and get the best rates.

Advantages and disadvantages of a semi commercial mortgage

Advantages

One of the main advantages of a semi-commercial mortgage is when purchasing the property you are exempt from the extra 3% stamp duty surcharge that you would otherwise have to pay if you already have a residential property. This will give you a lower transaction cost compared to investing in typical residential properties (*please seek qualified legal and tax advice).

They can also be seen as a safer investment due to the fact the building will have two or more separate tenants. This reduces the likelihood that the property will ever be completely vacant.

Disadvantages

There is not as wide a choice for lenders when trying to finance the purchase/refinance of a semi-commercial property.

Lenders will commonly factor in the strength of the tenant and provisions within existing leases. If you are purchasing a semi-commercial premises it is important to ensure that the commercial tenants lease is acceptable for any prospective lender.

Lenders will value semi commercial properties in different ways, commonly on OMV (open market value) VP (Vacant Possession) and 180 day value.

Semi Commercial Mortgage Eligibility Criteria

When it comes to semi-commercial mortgages the affordability and lending criteria can be complex. As a guide we can usually offer our clients the following:

Maximum Loan to Value (LTV)

Most lenders work to a maximum of 75% LTV for semi-commercial mortgages.

Loan Size

We work with a range of lenders and private banks to secure large semi-commercial mortgages with certain having no maximum loan limits.

Repayment or Interest Only

Whether you’re looking for a repayment mortgage where you own the property at the end of the term or an interest-only option we can help. Our access to a wide range of lenders means we can support both types of mortgage.

Owner Occupied and investment loans

If you’re looking to purchase a semi-commercial property as an investment to rent out or as your place of work we’re here to help. Our team have secured a number of owner-occupied mortgages for pub owners as well as investment properties for first-time and portfolio landlords.

Affordability

Affordability is a tricky one when it comes to semi-commercial properties. If it’s an investment semi-commercial mortgage then lenders will need to confirm rental income. Valuers will be instructed on behalf of the lender to confirm this.

For business/owner-occupied mortgages, lenders require a business plan with cash flow projections and previous accounts/financial information.

Deposit

Most lenders in the semi-commercial space will lend up to 75% of the property value so you’ll need to be prepared to put down anything between a 25-40% deposit. The deposit percentage will vary based on the risk to the lender as well as whether its owner occupied or as an investment.

Credit Score

As with all other mortgages, your credit rating will impact the amount you can lend as well as the interest rates offered to you. As a whole of market broker, we can help find a lender that matches your credit history.

Trading history/Experience

Lenders prefer to lend to experienced borrowers or those with a strong trading history in a similar sector. However, there are lenders that will consider startups and first-time investors, subject to a positive business plan, projections and or acceptable rental income on the property.

Applying for a semi-commercial mortgage

Applying for a semi-commercial mortgage can be a tricky process due to the different requirements and definitions lenders use. When using a commercial mortgage broker such as ourselves it’s usually broken down into four simple steps:

1. Get in contact with a semi-commercial mortgage broker
The first step is to get in contact with a broker who can review your plans and quickly narrow down a list of suitable lenders based on your requirements.

2. Get your paperwork ready
The next step is to get all of the paperwork ready for your application. This will usually consist of:
– ID
– Proof of address
– Proof of income – bank statements, tax returns, payslips
– Details of existing property investments

However, your broker will be able to give you a better idea of what will be required based on your plans.

3. Check your credit report
A quick check of your credit reports will make sure there are no hidden surprises and if there are any inaccuracies you can address these before they impact your application.