How Are Commercial and Semi-Commercial Mortgages Different?

Many properties include both a commercial and resident element, which means your mortgage requirements may differ slightly.

Examples of semi-commercial mortgage properties might be:

  • Shops with a flat above.
  • Pubs with residential space.
  • Guesthouses with owner’s accommodation.

Any such property will command a semi-commercial mortgage, even if a larger proportion of the building is used for residential use.

Generally, semi-commercial mortgages are pretty similar to a business mortgage, but there are key differences you need to be aware of.

 

semi-commercial mortgages

How Do Mortgage Lenders Decide if a Property is Semi-Commercial?

All mortgage lenders have different policies and rules, so the classification of a semi-commercial or commercial purchase may vary.

For example:

  • Some lenders will consider anything with less than 60% commercial space a regulated mortgage, more similar to a residential home loan.
  • Other providers might look at the financial value of each part of the property rather than floor space and use that to work out whether they will treat it as a full commercial acquisition or a semi commercial mortgage

 

Normally, any property with both residential and business areas is semi-commercial, unless there is a separate entrance for the residential aspect, in which case you might be able to take out two different mortgages for each part of the property.

What Are the Eligibility Criteria for Semi-Commercial Mortgages?

Like every mortgage product, a lender will assess several factors to decide whether to accept an application.

Criteria include:

  • The deposit available
  • Your credit rating
  • Trading history of the business
  • Viability of the purchase
  • Property sale value
  • Affordability metrics

We’ll run through each of these elements in a little more detail below to ensure you have a full understanding of the typical terms for a semi-commercial mortgage.

Semi-Commercial Mortgage Affordability

Lenders need to assess affordability to check whether an applicant will earn enough to cover the mortgage costs from their property investment.

That means looking at earnings and profitability – but the interpretation of those figures is up to your selected mortgage provider.

Deposit Requirements for a Semi-Commercial Property

Most semi-commercial mortgage products require a deposit of at least 20% and often up to 40%. The lender will require a higher deposit if they perceive the application as higher-risk.

 

The necessary down payment will vary depending on the balance between owner-occupier accommodation and commercial floor space.

Credit Rating Rules in Semi-Commercial Mortgages

 

Due to the commercial aspect of the loan, a semi-commercial mortgage is normally unregulated and based on the kind of terms you might expect from a commercial loan.

Each lender will have its stance on bad credit, so some lenders will accept only applicants with spotless credit records, whereas others may be far more flexible.

Trading History in a Semi-Commercial Mortgage Application

When you apply for a mortgage through a business, your lender will evaluate your average turnover and profits and how long you have been trading.

The longer-established you are, the less risky the loan since it’s far more likely you will continue trading long into the future.

Lenders can also refuse to lend in specific business sectors they consider higher risk.

Semi-Commercial Property Investment Plans

Alongside figures and your financial history, a mortgage provider will need to determine whether the commercial side of the property investment is a viable opportunity.

That usually means providing a business plan and demonstrating how the purchase will support business growth.

Where the property is being bought as a rental asset, the lender will need to see projected rental income forecasts with comparable local information to make sure the rent will be at least 125% of the mortgage payments as a bare minimum.

How to Find a Competitive Semi-Commercial UK Mortgage

There are three steps to finding an excellent semi-commercial mortgage to allow your property investment to proceed.

The first is to contact your preferred broker to help you navigate the lending market, make funding decisions, and ensure you apply to suitable lenders that are well-positioned to approve your application.

Second, you will need to prepare all your documentation, such as:

  • Proof of your ID and address.
  • Proof of income – often trading accounts, tax returns or bank statements.
  • Details of the property investment and values.
  • Records relating to building leases or tenancy agreements.

We’d also suggest you review your credit report before going ahead with the initial application.

Adverse credit or a low score can make it difficult to secure approval, so it’s worth ensuring your record is 100% up to date and error-free.

You’re then all set to submit your semi-commercial mortgage application, with all the background legwork and documentary evidence in place.

For further help with semi-commercial mortgages or to get your application process underway, please get in touch with Revolution Brokers on 0330 304 3040 or drop us an email at info@revolutionbrokers.co.uk.

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