Mortgages for Properties with Residential & Commercial Use
If you are looking at purchasing a property that has both residential and commercial distinctions, then you may want to apply for a semi-commercial mortgage.
The types of property that you would typically be looking at if you were considering a semi-commercial mortgage would be ones like pubs, shops and guest houses that all have a residential living area.
You can get these sorts of mortgages on both freehold and leasehold properties, and most lenders will lend up to 70% loan-to-value, and can often max out around 75%, though you will likely need equity in other properties for this as additional security.
Can I Get a Semi-Commercial Mortgage?
To access the best rates for your circumstance, you will ideally need some previous experience in running or letting a commercial property, or at least owned two or more buy-to-let properties for at least two years.
However even if this is only your first investment into a commercial property, there are plenty of lenders that can still help you, albeit with slightly higher rates, and most will ask that you at least own an additional property and be able to show that you have an outside income.
Even if you have a bad credit score or adverse credit, CCJs and missed payments or bankruptcy (not within the last three years), there are still specialist lenders that could help, as long as you use a mortgage broker who has access to them.
As with every mortgage application, times can vary. However, it’s important to remember that commercial mortgages are treated on a case-by-case basis and is tailored to your proposal and application. A rough guideline would be around three months to complete.
When do I Need a Commercial Mortgage
If you’re looking to raise up to £25,000 for a property, then you may be able to get a business loan and they are unsecured. However, if you need over £25,000, lenders will need more security in order to reduce the risk to themselves.
It’s also that, because of the legal and administrative costs associated with taking security on a commercial property, it’s generally considered uneconomic to borrow less than £50,000 on a commercial mortgage, with some lenders even having a minimum of £75,000.
What do I Need to Do to Qualify for a Semi-Commercial Mortgage?
Commercial lenders usually prefer their borrowers to have some form of property investment experience as operating these types of properties require a higher level of understanding. Every case is different, and a lot of applications will depend on the strength of the proposal put forward to the lender.
However, there are a couple of things that you could do to put yourself in the best position.
Like residential mortgages, the bigger the deposit you have, the more favourable you will be looked upon by the lender. A deposit between 20-30% will usually suffice for a semi-commercial mortgage.
If you’re already a home-owner or have a couple of buy-to-let properties that you’ve owned for around two years, then lenders will also take that as a positive and that you have the experience of dealing with a non-residential property.
If you’re going for your first commercial investment, you will be able to access more options if you are looking to purchase a standard shop or shop with a flat above.
The more complex the commercial properties, the more your choices will be limited.
What can I Offer as Security?
Usually, it’s the property that you’re buying and it’s typically 70% of the value, asking for a cash deposit for the balance of the purchase price.
If you don’t have cash available to offer for a deposit, then you can offer additional security, which could be another property that you have a large amount of equity in, but remember that there might be a charge on these additional assets.
Usually, it’s the property that you’re buying and it’s typically 70% of the value, asking for a cash deposit for the balance of the purchase price.
If you don’t have cash available to offer for a deposit, then you can offer additional security, which could be another property that you have a large amount of equity in, but remember that there might be a charge on these additional assets.
How Long can I Get a Semi-Commercial Mortgage for?
They typically last between 3-25 years. Shorter term finance is available, though this may be in the form of a bridging or property development loan.
Most semi-commercial mortgages are on variable rates and are quoted as a certain percentage over the base rate, in the same way a tracker residential mortgage would be, though semi-commercial mortgages on fixed rates are available for under £500,000 where the lender will take the risk on.
What About Fees?
Arrangement fees of around typically 1-2% of the loan amount for loans up to £1 million are usually added to the completion of the loan, though some lenders will want funds to cover the work that they do if you didn’t accept their offer.
As commercial properties are usually more valuable than residential, a valuer will have to visit the property and produce a report to give back to the lender. This isn’t the case for residential properties, which is why commercial valuations are a lot more expensive. The valuation fees are to be paid to the lender after the initial offer has been accepted.
Many commercial mortgages also require legal representation that is separate and paid for by you. You will also have to pay for further legal fees for your own solicitor.
Considering how complex commercial mortgages can be, it’s not uncommon to pay a higher fee when comparing it to a residential mortgage.
This sort of mortgage can be a complicated process and requires a wider knowledge of the mortgage market.
It’s imperative that you speak to a mortgage adviser that has access to a wider panel of lenders to ensure that you have the best chance of getting your mortgage approved.
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