Mixed-Use Mortgage Rates
At Revolution Brokers, we pride ourselves on offering tailor-made semi-commercial mortgages catering to a wide array of client needs throughout the UK. A semi-commercial mortgage, or mixed-use mortgage, is ideal for properties that serve both residential and commercial purposes. This type of financing is an excellent choice for investors looking to diversify their portfolios with assets like shops with residential units above or mixed-use buildings combining offices and living spaces.
To qualify for a semi-commercial mortgage with us, you'll typically need a minimum 25% deposit of the property's value. However, this can vary depending on your circumstances and the lender's requirements. Our team of specialists is adept at navigating these complex lending criteria and can guide you through the process, ensuring that you secure the best possible terms.
We work with various lenders to provide up to 75% loan-to-value on these mortgages, accommodating first-time buyers and seasoned landlords. Our service is distinguished by our ability to handle complex cases, including those involving low personal income or less traditional income types, and we offer flexible terms to suit your unique investment strategy.
If you're exploring the possibilities of a semi-commercial mortgage, request a callback from our team at Revolution Brokers to discuss your options and how we can assist you in achieving your property investment goals.
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How Are These Mortgages Different From Other Mortgage Types?
From a mortgage lender's perspective, these mortgages are so different because any property purchase deal linked to a business premise needs to be approved by a provider who offers commercial lending. Residential mortgages are regulated and assessed very differently, so applicants for mixed-use mortgages are considered on a case-by-case basis since each scenario will relate to an alternative property.
It's also wise not to compare buy-to-let mortgages with these type of mortgages – even if you plan to rent out part of the semi-commercial property to help with the purchase costs, it remains a business venture, which carries a different profile than a property you're buying solely to rent out.
Semi-commercial mortgage lenders have multiple factors to consider before they make an offer to lend, from the viability of the business plan to the details of a lease agreement and the profitability you can reasonably expect to make.
Is A Semi-Commercial Mortgage Right for You?
While it might seem obvious that some properties will be eligible for commercial, residential, or buy-to-let mortgages, the reality is that this isn't always clear-cut. There are many situations where applicants are turned down for borrowing simply because they have applied to the wrong lender or for a financing option that isn't suitable.
Examples include situations where the property is split by significant percentages, such as 90% residential for a first-time buyer with a small workshop attached or a large building primarily used as a residential home but with one outbuilding used as a studio or production space. Assuming this property would be suited to a residential mortgage may need to be corrected.
The general rule is that you'll need a semi-commercial mortgage if there are any elements of a business within the property – irrespective of how much of the floor space or percentage it comprises.
Mixed-Use Property Mortgage Policies
To add to the confusion, some semi-commercial mortgage lenders also apply their own policies and lending terms, making it worthwhile speaking with our experts before you take any action to ensure you are fully informed. Variances between lenders can mean:
- Some apply a policy called the 60/40 rule—if less than 60% of the property is used for commercial purposes, they'll consider it a residential mortgage and work to the standards regulated by the FCA.
- Others work based on a financial split, requesting separate valuations of the different parts of the building. They might decide that the proportion of the premise worth the most dictates the type of mortgage lending they're prepared to extend.
- Alternative lenders might take a different approach and offer two separate mortgage products, each covering a different proportion of the same building. However, this normally only works if you can divide the floorplans and have a separate entrance for each aspect of the property without any common areas.
As always, we recommend giving us a call or sending a message to determine which of the above applies or whether a lender you may be considering will use a different policy to evaluate the mortgage product that they feel is most appropriate.
What To Know Before Applying For Semi-Commercial Property Mortgage
Semi-commercial mortgages can be an excellent way to raise the financing required to purchase a home and simultaneously buy a business premise to trade from yourself or to let out to commercial clients or tenants.
Generally, semi-commercial properties perform well as investments and often better than buy-to-let residences, with average returns of roughly 8.7% compared to 5.8% on the median buy-to-let.
It's also worth thinking about the maintenance and running costs. Most business tenants are responsible for general repairs and business rates, meaning that a larger proportion of the rental income is profitable.
Renting to a residential tenant tends to mean higher expenses, as landlords are typically responsible for repairs, covering the costs of maintenance or replacing furnishings or appliances included in the rent.
However, it is also important to compare the mortgage costs and overall profitability alongside the slower capital appreciation normally associated with mixed-use properties, which tend to grow in value as a saleable asset at a slower rate than buy-to-lets.
Get A Property Valuations From A Trusted Commercial Mortgage Broker
Lenders may wish to arrange an independent valuation to assess the bricks-and-mortar value of the semi-commercial property.
However, suppose you have a mixed-use building where over half of the value is allocated to buy-to-let residential accommodation. In that case, the lender may waive this requirement if they can see evidence that the rental income will comfortably cover the mortgage costs.
Other lenders will decide to offer a buy-to-let mortgage for businesses for the entirety of the purchase or remortgage cost if they are happy the rental income is more than sufficient to offset their lending risk linked to the business element.
Although depend on multiple factors, this could mean you gain a more competitive interest rate.
Lenders may also offer perks like free valuations and cashback. These incentives can be attractive, but it's imperative you consult an independent broker before you move ahead. That's because some 'free' services conceal the fact that product or application costs are far higher than other lenders, so you need to have complete oversight of the overall costs and total repayments associated with a semi-commercial mortgage to have full control of your finances.
Eligibility Criteria (Minimum Income,Deposit Value, etc.)
Lenders will typically need to see a deposit (or equity if you're refinancing) of between 20% and 40%, depending on factors like the amount of income you forecast generating from the property. If you have a lower risk profile, you'll generally be accepted with a deposit to the lower end of the scale, but applicants with greater risk will need as high a deposit as possible.
We cannot indicate any standard deposit because, as with all of these requirements, it depends on the lender. However, some niche semi-commercial mortgage providers take a flexible approach and may be better suited if you don't have 40% of the property value available as a cash down payment.
As a rough indication of the norms in UK mixed-use mortgage lending:
- Owner-occupier mortgages, where you intend to run your own business from the property, typically need a minimum 20% deposit.
- Investors buying a mixed-use property are often expected to have at least 25% as a down payment.
One factor here is that you can potentially borrow more as a total mortgage value if the borrowing comprises a lower proportion of the overall property valuation. For example, suppose you've owned a mixed-use property for some time and have built up equity. In that case, you may qualify for more competitive deals if your borrowing requirements amount to a smaller LTV of 50% or less than the property is worth on the open market.
Mixed-Use Mortgages, Affordability & Credit History
Like any mortgage application, a lender must assess whether they think you have the income and financial reserves to keep pace with your mortgage repayments. While commercial property mortgages aren't regulated like residential lending, the provider still needs adequate assurance that you are very unlikely to default and will consider a combination of residential and commercial elements and the loan-to-value proportions.
In essence, a repossession means a lender will need to sell the property below market value through a liquidation sale. If they have a large amount of debt secured against the property, and it sells for a low price, they may lose.
Therefore, the lender will require several pieces of information before evaluating whether you comply with their affordability policies. That might mean looking at your projected income, working on the basis of earnings before interest, tax, dividends, and amortization (known as EBITDA).
However, your EBITDA can't be used as a rock-solid metric to determine how much you can borrow since other lenders will use alternative assessment methods.
Your operating figures and how you intend to make your semi-commercial mortgage repayments will be needed. A few years of trading experience, along with budgets to quantify the accuracy of your forecasts, can help.
While new owners or landlords can apply for mixed-use mortgages, lenders will likely need additional information if you don't have an ongoing trading history. We can also review your finances and forecasts to provide more information on how much you can borrow.
Get Tailored Support For Your Application
Navigating semi-commercial mortgages can be challenging, but our team is here to simplify the process. Let us help you find the perfect mortgage solution tailored to your needs. Whether you're looking to compare offers, identify the best product for your property, or explore ways to lower your borrowing costs, our experts are ready to guide you every step of the way.
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