With fantastic rental yields and savings on Stamp Duty, semi-commercial property is a great investment opportunity for experienced landlords. How do mortgages on these properties work, and what will lenders look for on your application?
Having a semi-commercial property in your portfolio is a great way to boost your rental income. However, for buy to let landlords diversifying into this space, or even for commercial investors looking at their first mixed-use investment, there are some complexities to bear in mind. Below, we answer the top questions relating to financing semi-commercial property.
Assessing semi-commercial property
Semi-commercial property can be assessed on an owner-occupier or commercial investment basis. For this blog, we will focus purely on the commercial investment criteria, as lender criteria for owner-occupier commercial mortgages can be more complex and will vary much more depending on your individual circumstances and the sector in which you operate.
What is semi-commercial property?
As the title suggests, a semi-commercial property is a property with a blend of both commercial and residential elements. Typically, semi-commercial properties will be retail units or office buildings with living accommodation above. The living accommodation is either used by the tenant of the commercial unit or leased to an unrelated party. To increase the total amount you can borrow for your semi-commercial mortgage, the residential unit must have independent access.
How do commercial mortgages work with mixed-use properties?
When assessing how affordable the mortgage is for you, lenders use a blend of the income from both the commercial unit and the residential accommodation.
If you need to rely solely on the commercial income to cover the lender’s affordability assessment, you’ll need a commercial lease in place at the point of application. Sourcing a commercial tenant can be difficult, so the lender will want to see a tenant paying rent at point of application or at the very least, Heads of Terms agreed.
As flats above commercial units typically still generate demand, lenders are less concerned if this element of the property is vacant at the point of application but please consider that it does need to be in a lettable condition
What deposit do I need for a semi-commercial property investment?
As with buy to let, most lenders accept as little as a 25% deposit, subject to due diligence on the property and the complete mortgage application.
What experience do I need?
Commercial property is deemed to be a complex investment type, so you will need to have some form of landlord experience. Whilst this does not necessarily need to be in the commercial space, the lender will look to see that you have successfully managed buy to let properties for at least one year.
What do lenders look for on a semi-commercial mortgage application?
As mentioned above, experience is essential in commercial mortgage applications and will be fundamental to meeting lender criteria. If there is more than one borrower on your application, as long as one of you has the relevant landlord experience, we can navigate any concerns the lender may have.
Also, as previously mentioned, if you’re using commercial income to demonstrate affordability, a commercial lease must be in place at the point of application. Apart from this, the underwriting process is similar to a buy to let mortgage application, with evidence of your income, assets and liabilities forming part of the lender’s assessment.
What documents do I need to submit with my commercial mortgage application?
Whilst this list is not exhaustive, you will generally need to supply the following as part of your application:
- Proof of ID and address
- Copy of existing portfolio
- Proof of income – latest P60s, latest three payslips, last two years annual tax returns
- Assets and liabilities statement
- Three months of bank statements evidencing satisfactory account conduct
- Evidence of your deposit
The complete list of documents will depend on your individual circumstances, the property type, and the lender. Speak to one of our experts who can help you collate your documents.
What do I need to consider with my semi-commercial mortgage application?
Given the challenges that come with the commercial property market, it’s essential that you complete your due diligence on the area before looking to invest. For example, is there a suitable demand for properties? Are there many vacant properties nearby? If the commercial tenant leaves, how quickly could you source a new quality tenant?
Similarly, you should look for strong covenants with the commercial tenant – is it a sector performing well? How well is the commercial tenant performing, and how long has the business been established? You can use tools such as Companies House to carry out this research. Doing these checks before your commercial mortgage application will give you the confidence you need in your property investment decisions.
Why work with a broker on my semi-commercial mortgage?
Commercial mortgage pricing is often bespoke to the application. The main benefit of working with one of our expert brokers is that they can negotiate the price and package your application to secure you the most cost-effective finance.
The MFB commercial team consist of ex-Highstreet bank managers with decades of experience between us. We have unparalleled experience within the complex commercial market and unique sector specialisms, meaning we can confirm relatively quickly whether the deal will work or not. Additionally, we have key relationships with all the major lenders and speak regularly with the key decision-makers, which will speed up your application process.
Get Started with a Semi-commercial Mortgage
To learn more about semi-commercial mortgages, visit our dedicated semi-commercial page here. To discuss your semi-commercial property finance plans, call our experts on 0345 345 6788 or submit an enquiry here.
