Semi-Commercial Mortgage

How to Get a Semi-Commercial Mortgage for Mixed-Use Properties

A semi-commercial mortgage is ideal for mixed-use properties with both residential and commercial spaces. Learn how it works, benefits, and tips to secure the best deal.
Written By: James Blackler
On Oct 27, 2024

Navigating the world of mortgages can be tricky, and it only becomes more complex when your property doesn’t fall neatly into residential or commercial categories. Semi-commercial mortgages, however, provide a solution for properties that mix the two. Whether you’re considering a café with a flat above or a shop and apartment combo, this guide breaks down everything you need to know about semi-commercial mortgages, how they differ from other types, and the steps to get one.

What is a Semi-Commercial Mortgage?

A semi-commercial mortgage (sometimes called a mixed-use mortgage) is specifically designed for properties that have both residential and commercial spaces. Think about those corner shops with apartments above them or office spaces with flats attached. These properties require a different type of mortgage because they don’t neatly fit into either the residential or commercial categories.

Semi-commercial mortgages offer flexibility for these types of buildings, allowing landlords, investors, and business owners to finance them under terms suited to both residential and business use.

Why Choose a Semi-Commercial Mortgage?

There are several benefits to choosing a semi-commercial mortgage over separate mortgages for residential and commercial spaces:

  • Cost-Effective: Typically, a single mortgage on a semi-commercial property can be more affordable than managing separate residential and commercial loans.
  • Flexible Terms: Since these loans cater to mixed-use properties, the terms are generally more flexible than those for strict commercial or residential loans.
  • Investment Opportunities: With residential space often in demand, semi-commercial properties can generate rental income from the residential side and revenue from the business area.

Who Can Benefit from a Semi-Commercial Mortgage?

Semi-commercial mortgages are designed for property investors, small business owners, and landlords who operate or rent out spaces in mixed-use properties. Here are a few examples of people who typically benefit:

  • Landlords with mixed-use properties
  • Business owners looking to invest in a space that includes both business premises and living accommodation.
  • Investors wanting to diversify their portfolios with flexible, income-generating properties.

How to Apply for a Semi-Commercial Mortgage

Step 1: Understand Your Property Type and Needs

Assess your property’s exact usage: is it primarily residential, or is there a substantial commercial aspect? Your lender will want details about both spaces to evaluate whether a semi-commercial mortgage is suitable. Some lenders also require the property to have a certain percentage of residential space.

Step 2: Calculate the Market Value (Not Vacant Possession Value)

Lenders base their loan offer on the market value of the property, not the vacant possession value. This difference is key: the market value considers the rental income potential, whereas vacant possession focuses on the property’s value if sold empty. The market value tends to be higher, which may allow you to borrow more.

Step 3: Prepare Your Documents

Lenders will require the following information:

  • Proof of income: For both your business and any rental income from residential tenants
  • Property details: Including any existing tenants, commercial leases, and your intended use of the property
  • Credit history: Lenders assess your creditworthiness, especially if you’ll be living in part of the property or renting out one of the units

Step 4: Compare Lenders and Interest Rates

Interest rates on semi-commercial mortgages vary widely, so shopping around is essential. While high-street banks may offer semi-commercial mortgages, specialist lenders often have more tailored terms for unique mixed-use properties.

Understanding Market Value vs. Vacant Possession Value

When applying for a semi-commercial mortgage, lenders prioritize the market value over the vacant possession value. Here’s a breakdown of each:

  • Market Value: Assesses the property’s worth based on potential rental income, considering both the residential and commercial units.
  • Vacant Possession Value: This value reflects the property’s value if it were entirely empty, which can be considerably lower for investment purposes.

Focusing on the market value can lead to a more favourable mortgage offer, as it reflects the true revenue-generating potential of your property.

Key Benefits and Potential Drawbacks

Advantages

  • Multiple Revenue Streams: Earn income from both business premises and residential rentals.
  • Flexible Property Options: Semi-commercial properties open opportunities for various uses and tenant types.
  • Specialized Lenders: Many lenders offer terms designed for these properties, often more lenient than traditional mortgages.

Drawbacks

  • Complex Eligibility Requirements: Lenders can be stricter on income requirements for semi-commercial mortgages.
  • Potentially Higher Rates: Some semi-commercial mortgages have higher interest rates than residential loans, especially if the commercial side is riskier.
  • Market Sensitivity: Mixed-use properties may face shifts in demand, especially during economic fluctuations.

FAQs About Semi-Commercial Mortgages

What qualifies as a semi-commercial property?

Properties with both commercial and residential spaces (like shops with flats) qualify as semi-commercial. The property must genuinely serve both functions for a semi-commercial mortgage.

Can I get a semi-commercial mortgage with bad credit?

It’s possible, though you may need to work with a specialist lender. Bad credit may affect your interest rate and the amount you can borrow.

Is a deposit required for a semi-commercial mortgage?

Yes, deposits are typically required, ranging from 20% to 30% of the property’s market value. The exact amount will depend on the lender and your financial profile.

Are semi-commercial mortgage rates higher than residential rates?

In many cases, yes. Semi-commercial mortgages often have higher interest rates, as there’s more risk associated with mixed-use properties.

Can I rent out the residential portion of a semi-commercial property?

Yes! Renting out a residential unit is common and usually allowed by lenders, and it can help offset your mortgage payments.

Is a Semi-Commercial Mortgage Right for You?

A semi-commercial mortgage can be an excellent choice if you own or are looking to invest in a mixed-use property. The flexibility, income potential, and unique financial structure offer many business owners and property investors a win-win scenario. Before diving in, understand your property’s market value and shop for competitive interest rates to secure the best deal.

For more details and tailored advice on how to obtain a semi-commercial mortgage, we encourage you to reach out to our knowledgeable team. Simply call our office at 0333 335 6595 or message us to speak with a member of our dedicated commercial team.

Written by
James Blackler

James Blackler is the founder of The Mortgage Blog
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