Understanding Semi Commercial Mortgages

A semi commercial mortgage is meant to finance or refinance a building which is used for both business and domestic life. So, a good example would be a shop which also has a living space above it.

Semi commercial mortgages are also referred to as mixed-use mortgages. They are often more flexible than a typical commercial mortgage. A semi commercial mortgage can apply to any scenario where you live on-site as the business owner - like a guest house.

What is the Difference Between a Mixed-Use Mortgage and Other Options?

A mixed-use mortgage is typically approved on a case-by-case basis. Owing to its unique nature, a semi commercial mortgage is neither a residential mortgage or a standard commercial mortgages, both of which are assessed in different ways. For this reason, it is also difficult to compare different mortgage deals because the business part of the process will be assessed differently by each provider.

Is a Semi-Commercial Mortgage Right For You?

There’s a lot of considerations when looking at mortgages but the reality is quite simple. If your property has both business and domestic use, you need a semi-commercial mortgage. Any other mortgage won’t be suitable.

It’s worth noting that the criteria for a mixed-use mortgage varies widely from lender to lender - some will treat your mortgage as a residential one if less than 60% of your property is commercial (we call this the 60/40 rule). Others will get two valuations for each part of the building and go from there.

Mixed-Use Mortgage Financial Considerations

A mixed-use mortgage is a good way to raise the finances for a home and buy a business property at the same time. These types of investments do well, offering an average return of 8.7% compared to the average buy-to-let, which is only 5.8%.

If you rent part of your property to a tenant, then you’ll be responsible for domestic repairs - business tenants are responsible for their own general upkeep.

Mixed-Use Mortgage Property Valuations

You may find that a lender will want to arrange for an independent valuation of the property in most standard mortgage cases, but mixed-use mortgages can be exempt from this if you can show rental income can cover mortgage costs.

Semi-Commercial Mortgage Eligibility Criteria

Eligibility can vary massively depending on lenders. It is worth noting that some will want evidence of annual income as part of their criteria. However, it will be subject to individual situations.

You may need a minimum deposit of between 20% and 40%. This can be influenced by your risk level. However, the average level is typically 25%.

Affordability Assessments

A lender will need to perform an affordability assessment to ensure you can afford to pay the costs of your mortgage.

This is typically done on the basis of EBITDA, which stands for Earnings Before Interest, Tax, Dividends and Amortisation. However, this is not a perfect metric, so you should be aware that it will still be done on a case-by-case basis.

Credit scores are an important part of getting approved for a mortgage, and it is worth noting that your credit can impact your eligibility, but it is still on a case-by-case basis.

Mortgage Rates

Mortgage rates for a semi commercial mortgage can vary significantly. This is due to the lack of a generalised lending criteria or process for this specific type of mortgage.

Applying for a Mixed-Use Mortgage

Both your typical buy-to-let lenders and commercial lenders will offer semi commercial mortgages but they will have specific, in-house practices which will shape how they choose to lend money or what rates they set.

You will most likely see higher interest rates due to the complex nature of this type of mortgage. However, this is offset by good returns and a lot of potential for renting out either the commercial or domestic part of the building.

Ultimately, a mixed-use mortgage can be a good way to do things, but there are definitely considerations. If you want to get an idea of rates, you will have to commit to almost a full quote process with specific lenders which can be costly. Alternatively, you can take your chances with whatever a single lender is prepared to offer you.