SEMI-COMMERCIAL MORTGAGES

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SEMI-COMMERCIAL MORTGAGES

A semi-commercial property is one that’s partially used for business and also used as a home. If you need finance for a semi-commercial property, we are here to help.

What exactly is a semi-commercial mortgage?

A semi-commercial mortgage is a loan that you’ll need if you want to either buy or remortgage a property that’s deemed to be ‘mixed use’. A property needs to include commercial and residential spaces if it is to be regarded as semi-commercial.

What exactly is a semi-commercial property?

Semi-commercial properties are premises that are used for residential and commercial purposes. They are also called ‘mixed-use’ properties.

Examples of semi-commercial properties

  • Pubs that have accommodation built into them
  • Off-licences, restaurants and take-aways with flats above them
  • Owner-occupied AirBnB properties
  • Any business premises that’s also your home

Can I get a commercial mortgage on a residential property?

In some cases, yes, in some cases, no. If you’re thinking about getting this kind of mortgage on a typical residential property, it’s unlikely you’ll be able to do this. In this case, you’d need to be covered by a standard residential mortgage. A key benefit of this is the lower interest rates attached to it.

However, if you do run a business from your home this could be regarded as commercial activity and you may need a specialist mortgage. An example of this might be a property that’s used for beauty treatments or as a workshop.

If you think you may need a commercial mortgage but aren’t quite sure, get in touch today so we can give you the clarity that you need.

Will I be eligible for a semi-commercial mortgage?

Are you a business owner? Are you thinking about buying or remortgaging a mixed-use property, you’ll require a semi-commercial mortgage. You’ll also need one if you’re an investor renting out mixed-use property.

Whether you’re eligible or not will depend on your specific personal circumstances. Lenders will look at factors like your credit profile, your financial situation and how your successful your business is. A commercial mortgage broker can tell you if you’re eligible.

How much will I be able to borrow?

A commercial mortgage lender will look at many factors before deciding how much you can borrow. They will need to ensure you can afford the mortgage payments and will take your EBITDA into account. This is your ‘earnings before interest, tax, depreciation and amortisation’. 

The more profitable your business is, the more likely it is you’ll receive the funding you need.

Can I reside upstairs in this kind of property? 

You are permitted to live in the residential area of your mixed-use or semi-commercial property. However, this may have an impact on the loan you receive. This is because it will turn the transaction into a regulated one. You may face restrictions on the number of lenders you can choose from.

Do I need planning permission if I want to convert my mixed-use property?

You may or may not need planning permission if you want to make changes to your property. If you want to make external changes to the structure of the property, you will probably need planning permission. However, new legislation to permitted development rights means you can change a mixed-use property under class E to residential without applying for full planning permission. However, this is subject to a range of conditions.

What is covered by Class E?

  • Offices
  • Restaurants
  • Cafes
  • Shops
  • Banks, travel agents & estate agents
  • Light industrial units
  • Medical or health services
  • Creches and day nurseries
  • Indoor sports venues

Does your property fall under any of the above categories? If so, there’s a good chance you’ll be able to make changes to it under permitted development rights. You will need to show your local planning authority that your proposal won’t have a negative impact related to things like flood risk, transport, highways, noise and the amount of natural light in the area.

Can I convert my commercial property into a fully residential one?

Permitted development rights enable you to convert many kinds of commercial properties into residential ones without having to ask for full planning permission. However, you will still need permission if you want to make external changes to the structure of the property.

How do I get a semi-commercial mortgage?

If you are interested in obtaining a semi-commercial mortgage, the first thing you’ll need to do is to talk to an experienced and reputable commercial mortgage broker who knows the latest legislation inside out. As a commercial mortgage is a specialist financial product, it’s best to avoid standard brokers as it’s unlikely they will have the expertise you require.

Your commercial broker can take a close look at your current situation and then put together an application on your behalf, targeting the most suitable lenders. Make sure you provide them with detailed information about your personal and business finances. Once your application is signed and completed, the broker will liaise with your lender, your solicitor and your valuers to get your application completed.

What will a semi-commercial mortgage lender ask for?

The process can differ from one lender to another. However, here are some of the things it’s likely you’ll be asked for:

  • Personal bank statements (usually 3-6 months)
  • Business bank statements (usually 3-6 months)
  • Income and expenditure details

If you’re an owner-occupier, you’ll normally need to hand over two years of accounts to show your business is profitable enough.

Can I get a semi-commercial mortgage with just 20% deposit?

Unfortunately not. In most cases, you’ll need to provide a minimum 25% deposit. To get a semi-commercial mortgage, you normally need a much bigger deposit than you would for a residential one. The amount you’ll be asked for will depend on factors like your balance sheet, your credit profile and the kind of business you run.

A commercial broker can give you a clear idea of how much you’re likely to need.

Which fees will I be charged for a semi-commercial mortgage?

Valuation fee

You will need to pay a valuation fee. This fee is likely to be considerably higher than the fee for a residential mortgage due to the extensive nature of the report. Your valuation fee will also be influenced by your property value. The more your property is worth, the more you will have to pay.

Lender arrangement fee

A fee will be required to underwrite the loan. This will be charged around the time the process is coming to an end. You can expect to pay around 1-2% of the amount you’re borrowing.

Broker fee

You’ll also be charged by your broker for sourcing and administrating the mortgage. This tends to be a fixed amount, but you can expect to pay more if you have a particularly complex case.

Legal fees

You will need to pay the commercial lender’s legal fee as well as your own.

What is considered to be a good rate for a commercial mortgage?

Commercial mortgage interest rates are higher than residential ones. This is because more risk is involved for the lender. Rates can range from approximately 5% – 12%, though in most cases you’ll pay much less than the higher rate.

Your rate will depend on several factors. These can include your:

  • Credit profile
  • Business accounts
  • Loan amount
  • Industry

Speak to a commercial mortgage broker to get a clearer idea of what to expect. 

Who are the best semi-commercial lenders on the market?

Many big-name High Street banks offer commercial mortgages but tend to be very picky when it comes to criteria. They also tend to prefer to work on less complex cases. This is why challenger banks are a popular choice for semi-commercial lenders. These lenders may not be as well-known but normally know the market inside out.

It’s best to compare mortgage products before you agree to anything. A specialist broker can help you get the best deal for your specific needs,

How long are commercial mortgages?

In most cases, you’ll be offered a commercial mortgage term of up to 25 years, though some lenders may let you repay over 30 years. However, you are likely to be met with a higher rate and more restrictive terms if you do opt for a longer mortgage. Perhaps you want a short-term mortgage? If so, a commercial bridging loan could be the best match for your needs.

Are semi-commercial mortgages regulated?

The vast majority of commercial mortgages aren’t regulated. However, if over 40% of your property is regarded as residential, it will be seen as a regulated finance product.

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