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Semi-Commercial Mortgages in the UK

Interested in part residential, part commercial mortgages? Get the right advice about them here

No impact on credit score

Pete Mugleston

Author: Pete Mugleston - Mortgage Advisor, MD

Updated: August 26, 2021

Many customers have gotten in touch with us to enquire about semi-commercial mortgages. Some are ready to apply for one, while others simply want expert advice and to find out whether they’d qualify for the best interest rates on the market.

What is a semi-commercial mortgage?

Semi-commercial mortgages are used to purchase property that includes both commercial and residential elements, often referred to as mixed-use property. You might also hear these products referred to as ‘part commercial, part residential mortgages’ or ‘mixed-use mortgages’.

Examples of semi-commercial mortgages include…

Generally speaking, a mortgage for a semi-commercial property would be assessed and handled in the same way as a business mortgage, so a commercial lender rather than a residential mortgage provider would finance the purchase.

Do I need a semi-commercial mortgage?

If the property you’re buying has a combination of residential and commercial floorspace, the answer is most likely yes. Even if the development in question has a higher percentage of residential floor space, it would still be classed as mixed-use.

The only exception would be if the residential portion of the building has a separate entrance, so the occupier would not need to set foot in the commercial floorspace to access their home. In this case, two separate mortgages could be taken out on the property, one commercial and the other residential.

Take note: Lenders view the classification of semi-commercial and commercial very differently. Some work on the 60/40 square footage rule (whereby if it’s less than 60% commercial they class this as regulated). To confuse matters, some lenders work on the actual split in monetary value terms to determine if it’s semi-commercial or full commercial.

If you’re unsure what type of mortgage you need, get in touch with us so we can match you with a broker who specialises in mixed-use property transactions. They can tell you what type of finance you need and help you get the best deal if you choose to proceed with an application.

What type of mortgage do I need for a flat above a commercial premises?

The answer depends on whether the flat has its own entrance. If the occupier has to enter the commercial premises to access their home, a semi-commercial mortgage is needed for a property of this nature.

However, it may be possible to get a residential mortgage for a flat above a commercial property if the flat has its own entrance that is not connected to commercial floorspace, but you should be aware that some residential providers won’t lend under these circumstances.

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What is the eligibility criteria for a part commercial, part residential mortgage?

Commercial mortgage lenders assess applicants based on the following factors…

  • Affordability
  • The amount of deposit you have
  • Credit rating
  • Trading history
  • The strength of the investment

Read on to find out how each of these factors can affect your mortgage eligibility…

Affordability

When assessing semi-commercial mortgage affordability, the lender will want to see that the business or individual’s projected income is high enough to cover the loan. Business lenders work this out by looking at earnings before interest, depreciation and amortisation (EBITDA), but there’s no hard and fast rule on how much you can borrow based on this.

The lender will need to be confident that the company’s operating performance is strong enough to cover the monthly payments. If the investment or business is not likely to perform well enough, some lenders will allow the borrower to declare other legal income.

Other lenders such as high street and challenger banks might use their own semi-commercial mortgage calculator to work out how much you can afford to borrow, so it’s important to seek advice from a whole-of-market broker to make sure you’re paired with the right mortgage provider, based on your needs and circumstances.

Deposit requirements

Deposit requirements for semi-commercial mortgages are generally the same as commercial, ranging from 20-40%. They can vary depending on the level of risk and there’s a slight difference between owner-occupier and commercial investment deals.

Owner-occupied commercial mortgages, which are for businesses buying a premises to work from, usually come with a maximum loan to value (LTV) ratio of 80%, while commercial investment typically comes with a lower LTV cap of 75%.

It may be possible to get a semi-commercial mortgage with higher LTV ratio than 75% by putting down extra security, such as properties or assets you own and hold equity in.

Credit rating

As semi-commercial lending is usually bespoke and tailored to the individual, every lender has their own stance on individuals/businesses with bad credit. Some prefer to deal with borrowers whose credit report is spotless, while others will offer flexible deals for those with various forms of adverse against their name.

The thing to remember is that the market is vast, and with a whole-of-market broker on your side, it may be possible to find a lender who specialises in clients with your specific type of credit issue, whether that’s something minor like a missed invoice payment, or a severe credit problem such as a bankruptcy.

Specialist bad credit commercial lenders are usually flexible enough to take the age and severity of the credit issue into account, and offer you a deal based on these factors.

Trading history

Some lenders will only offer you a semi-commercial mortgage if you have a strong track record in the same industry as the business venture in question. This is especially true if it’s high risk sector such as retail, and the amount of time you will need to have been trading for can vary across the spectrum.

That said, there are lenders who cater for first-time investors and start-up businesses, as long as they present projections and a strong business plan.

The strength of the investment

Most commercial lenders will only offer a mortgage if they’re convinced the investment is viable, and they will judge this on a number of factors that we’ve already covered.

They may ask to see a business plan and proof of you/your business’s track record in the relevant industry to assess your past performance and future projections.

For commercial investment mortgages, some lenders will expect 190% forecast rental coverage for a business property or 130% for a buy-to-let, but it may be possible to find a provider that will accept anything between 110-125% rental coverage.

How to get a semi-commercial mortgage

Here are three steps you should take to get your application off to the best possible start…

  1. Find the right mortgage broker: There are so many variables to consider with semi-commercial mortgages and the mortgage agreement will differ depending on whether you want to occupy the property or simply invest in it. It’s recommended that you start by seeking professional advice from a broker who specialises in semi-commercial mortgages. Make an enquiry  and our advisor-matching service will pair you up with a broker who has the expertise you need.
  2. Prepare your documents: The mortgage lender will request these documents: Photo ID, proof of address, proof of income (bank statements or accounts), details of any existing property investments, building leases.
  3. Check your credit reports: This will give you the chance to make sure they’re up to date and challenge any inaccuracies on them, as this could affect the mortgage rates you qualify for. Your broker might also be able to suggest ways to optimise your credit file for your mortgage application. You can download your credit reports here.

From here, your mortgage broker will guide you through the next steps and will start by rounding up the best deals that you qualify for. They might suggest applying for an agreement in principle first, but some semi-commercial mortgage lenders prefer to move straight to full application.

How do I get the best rates on a mixed-use mortgage?

Like commercial mortgage rates, semi-commercial mortgage interest rates are not determined in advance. The lender will decide which terms to offer you on a bespoke basis, based on the strength and viability of the investment, among other factors.

In general, semi-commercial mortgage rates are usually higher than residential mortgage rates, but favourable deals are still possible under the right circumstances. At the time of writing, it’s possible to get a mixed-use mortgage with an interest rate of less than 3%, but keep in mind that rates can change at any time.

Although it’s difficult to predict the exact rate you’ll qualify for without a full assessment of your circumstances, there is a way you can make sure you end up with the most favourable deal available to you.

By applying through a broker who specialises in semi-commercial mortgages, you can rest assured that you’ll find the best deal that you qualify for. They know exactly which lenders are best placed to offer the lowest interest rates on a mixed-use mortgage, plus they can offer you bespoke advice on your investment and help you with all of your paperwork.

What type of mortgage do I need to run a business from home?

A residential mortgage will still suffice unless you’re making significant changes to your property, such as adding additional rooms to serve as business space. You should also let your lender know that you’re running a business from home. As long as your mortgage provider offers their consent, there is a chance you won’t need to switch to a semi-commercial mortgage or a business mortgage.

Do I need to tell the council?

You may need to contact the local planning office to seek permission if you’re hoping to make any alterations to your home to support your business. You might also have to contact the local council and get their go-ahead if your business is likely to see regular customers or deliveries arriving at your address, if you will need to advertise outside of your address, or require a license to trade from your home.

Also be aware that running a business from home can have tax and insurance implications.
Such as…

  • You may need to take out business insurance as home insurance won’t necessarily cover your stock and equipment
  • You might need to pay capital gains tax on the part of your property you use for business if you were to sell your home
  • Business rates tax might also be payable on this part of your home
  • You can include your business costs in your Self Assessment tax return if you’re a sole trader or part of a business partnership
  • You can claim a portion of the cost of living and recoup things like council tax, heating, broadband etc

Will running a business from home affect my mortgage?

If the terms of your mortgage don’t prohibit running a business from your home, the lender gives you permission and you aren’t making any substantial changes to the property itself, working out of your abode is unlikely to affect your mortgage.

That said, you may incur extra costs in the form of business rates tax and insurance – see the section above for more information.

Under what circumstances would I need to refinance to a part residential, part commercial mortgage?

There is a possibility that you would need to switch from a residential mortgage to semi-commercial if the needs of your home business require you to make changes to your property, such as adding an extension to give you additional commercial floorspace.

How much business floorspace you can have before the property is classed as semi-commercial will vary from one lender to the next, but generally speaking, anything over 30% might call for a semi-commercial mortgage.

Can I get a commercial mortgage on a residential property?

In a word, no. It is not possible to use a business mortgage to buy a house or any other type of residential property.

The property would need to have at least some commercial floorspace for a commercial mortgage lender to consider offering you a loan. If the property was a mixture of commercial and residential, you would likely need a semi-commercial mortgage.

Can I buy commercial property with a residential mortgage?

No. If your intention is to buy a premises for your business to operate out of, you will need an owner-occupier commercial mortgage and if you’re planning to rent said premises out to a company, you’d need a commercial investment mortgage.

Any property you’re looking to buy to live in yourself would usually require some form of residential mortgage, the only exceptions being when there is a percentage of commercial floorspace. Anything over 30% would likely be classed as semi-commercial.

Speak to a semi-commercial mortgages expert

Semi-commercial mortgages can be complex since they’re a middle ground between two product types. For this reason, it can be difficult to get the right advice, but the good news is that there are brokers in our network who specialise in mixed-use mortgages.

They know exactly which lenders are best positioned to offer semi-commercial mortgages with the best rates on the market, can guide you through the application process and help you choose the right mortgage option.

Through our free broker-matching service, you can rest assured that you’ll be paired up with a mortgage advisor with the exact knowledge, expertise and lender contacts to get you the best semi-commercial mortgage available.

Call Online Mortgage Advisor today on 0808 189 2301 or make an enquiry and we’ll set up a free, no-obligation chat between you and your ideal mortgage broker today.

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About the author

Pete, an expert in all things mortgages, cut his teeth right in the middle of the credit crunch. With plenty of people needing help and few mortgage providers lending, Pete found great success in going the extra mile to find mortgages for people whom many others considered lost causes. The experience he gained, coupled with his love of helping people reach their goals, led him to establish Online Mortgage Advisor, with one clear vision – to help as many customers as possible get the right advice, regardless of need or background.

Pete’s presence in the industry as the ‘go-to’ for specialist finance continues to grow, and he is regularly cited in and writes for both local and national press, as well as trade publications, with a regular column in Mortgage Introducer and being the exclusive mortgage expert for LOVEMoney. Pete also writes for OMA of course!

Read more about Pete

Pete Mugleston

Mortgage Advisor, MD

FCA disclaimer

*Based on our research, the content contained in this article is accurate as of the most recent time of writing. Lender criteria and policies change regularly so speak to one of the advisors we work with to confirm the most accurate up to date information. The information on the site is not tailored advice to each individual reader, and as such does not constitute financial advice. All advisors working with us are fully qualified to provide mortgage advice and work only for firms who are authorised and regulated by the Financial Conduct Authority. They will offer any advice specific to you and your needs.

Some types of buy to let mortgages are not regulated by the FCA. Think carefully before securing other debts against your home. As a mortgage is secured against your home, it may be repossessed if you do not keep up with repayments on your mortgage. Equity released from your home will also be secured against it.

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