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By Pete Mugleston | Mortgage Advisor

Pete has been a mortgage advisor for over 10 years, and is regularly cited in both trade and national press.

Updated: 4th December 2020*

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.

To answer all of these questions and more, we’ve put together this comprehensive guide to semi-commercial mortgages, and you’ll find the following topics covered below…

Read on for more information or make an enquiry and the expert semi-commercial mortgage brokers we work with will answer all of your questions about these products and connect you with the lender best positioned to offer you a favourable deal.

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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.

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.

Confused? The expert commercial mortgage brokers we work with can clear things up for you if you make an enquiry.

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

As we touched on in the previous section, the answer to this question 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.

What is the eligibility criteria for a semi-commercial 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

Semi-commercial mortgage 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.

How much deposit do I need for a commercial mortgage?

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 do I get the best rates on a mixed-use commercial 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.

Are owner-occupied commercial mortgage rates the same as commercial investment?

In general, owner-occupied commercial mortgage rates are slightly lower than commercial investment, as most lenders consider these deals to be higher risk.

Although it’s difficult to predict what kind of rates you will end up with, there is a way you can make sure you’ll get the most favourable deal available to you. 

By applying for a semi-commercial mortgage through a whole-of-market broker, you’ll have access to all of the best deals you’re eligible for, so make an enquiry and the semi-commercial mortgage experts we work with will introduce you to the right provider.

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

Customers often ask us do I have to tell my mortgage company if I start a business from home? and the answer is yes, as doing so could be a breach of your terms with the lender.

As for what type of mortgage you will need to be on, 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. As long as the lender offers their consent, there is a chance you won’t need to switch to a semi-commercial mortgage or a business mortgage.

What else do I need to know about running a business from a home with a mortgage?

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

If you have questions and want to speak to an expert for the right advice, call Online Mortgage Advisor today on 0808 189 2301 or make an enquiry.

Then sit back and let us do all the hard work in finding the broker with the right expertise for your circumstances. We don’t charge a fee and there’s absolutely no obligation or marks on your credit rating.

Updated: 4th December 2020
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FCA disclaimer

*Based on our research, the content contained in this article is accurate as of 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.