Semi-Commercial Mortgage Essentials Explained

Semi-commercial mortgages provide a unique opportunity to own both a commercial property and a private residence within the same unit. This can be particularly beneficial for individuals embarking on a new business venture.

Read on to find out everything you need to know about semi-commercial mortgages.

What is a semi-commercial mortgage?

A semi-commercial mortgage is a type of loan specifically designed for a mixed-use property that has both residential and commercial elements.

This unique mortgage product allows individuals to finance properties that serve a dual purpose, such as a building with a shop or office space on the ground floor and residential units above.

How do you value a semi-commercial property?

Valuing a semi-commercial property involves assessing both the commercial and residential aspects to determine its overall worth accurately. Here are key factors to consider when valuing a semi-commercial property:

  1. Rental Income: Evaluate the rental income generated by the commercial and/or residential units within the property. Commercial rental income is typically valued based on market rates, while residential rental income considers local rental trends.
  2. Location: The property's location plays a significant role in its value. Factors such as foot traffic, proximity to amenities, and the overall desirability of the area can impact its commercial and residential value.
  3. Property Condition: Assess the condition of both the commercial and residential spaces, considering any necessary repairs or renovations. Well-maintained properties generally have higher values.
  4. Market Trends: Stay informed about current market trends in both the commercial and residential property sectors. Understanding demand and pricing trends can help determine the property's value.
  5. Comparable Sales: Look at recent sales of similar semi-commercial properties in the area to gauge the market value. Comparing prices of comparable properties can provide valuable insights into the property's worth.

Is a semi-commercial mortgage cheaper?

Whether or not a semi-commercial mortgage works out cheaper than taking out two separate mortgages (residential and commercial) is cheaper or not is a difficult question. However, with them tending to have lower rates than commercial mortgages, they should, most of the time, work cheaper.

Additionally, by combining the two you reduce the immediate fees when you apply and the ongoing amount of fees compared with setting up 2 individual mortgages, all whilst streamlining the lending process.

In some cases, to help with early-stage affordability, you may find an interest-only mortgage. However, this will turn out more expensive in the long run but may be a good investment.

All-in-all, they can often be cheaper and are definitly more hassle-free!

How does eligibility differ for semi-commercial mortgages compared to residential mortgages?

Eligibility criteria for semi-commercial mortgages differ from those of residential mortgages due to the unique nature of properties that combine residential and commercial elements, so it is crucial to understand these criteria before you apply. Key factors that may impact loan eligibility for a semi-commercial mortgage include:

  1. Property Usage: Lenders assess how the property will be used, considering the commercial and residential components and the associated risks.
  2. Income Assessment: Borrowers may need to demonstrate sufficient income to cover both residential and commercial mortgage payments, depending on the property's rental or business income potential.
  3. Loan-to-Value Ratio: Lenders may have specific loan-to-value ratio requirements for semi-commercial properties, which can differ from traditional mortgages.
  4. Credit History: A strong credit history is essential for securing a semi-commercial mortgage, as lenders evaluate the borrower's financial stability and creditworthiness.
  5. Property Valuation: The valuation process for semi-commercial properties considers both the commercial and residential aspects to determine the property's overall worth.

Understanding these differences in eligibility criteria is crucial for small to medium-sized business owners considering a semi-commercial mortgage for properties with mixed-use purposes.

Is a deposit required for this type of loan?

Yes, a deposit will always be required for this type of mortgage. The typical deposit amount for a semi-commercial mortgage ranges from 20% to 40% of the property's value. Lenders may require a higher deposit for semi-commercial properties due to the perceived higher risk associated with combining residential and commercial elements.

Costs involved with a semi-commercial mortgage

Here are some of the most common fees and costs:

  1. Product Fee: Some lenders may include a product fee, which can be added to the mortgage amount, impacting the overall borrowing costs.
  2. Conveyancing Solicitor Fees: Engaging a conveyancing solicitor is essential for the legal aspects of the property purchase, and they will charge fees for their services.
  3. Broker Fee: Mortgage brokers may charge a small fee for their services, typically split into a booking fee upon finding a suitable mortgage deal and the majority of the fee upon mortgage completion.

What are the typical interest rates offered?

The typical interest rates offered for semi-commercial mortgages can vary depending on various factors, including the lender, the borrower's financial profile, the loan-to-value ratio, and current market conditions.

Currently (May 2024), interest rates for semi-commercial mortgages range from around 3% to 7%, however, these are likely to come down over time.

To find the best rates and fees across various lenders, consider using Finance Nations fintech platform. Simply book a call with us and we'll help discover your best finance options.