Semi-commercial mortgages

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Page written by Rachel Wait. Last reviewed on September 25, 2024. Next review due April 6, 2025.

If you’re buying a property comprising both residential and commercial space, you’re likely to need a semi-commercial mortgage.

Here we explain how this type of mortgage works, who needs one, and how much you can typically borrow.

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What are semi-commercial mortgages?

A semi-commercial mortgage, or mixed-use mortgage, is a loan designed for purchasing or remortgaging a property that’s considered mixed-use.

This means the property combines both residential and commercial usage, such as a retail unit with a residential flat above it.

You might want to buy this type of property if you’re an investor looking to generate income from residential and commercial tenants.

What types of properties qualify as semi-commercial?

The following types of property could be considered semi-commercial:

Pubs with self-contained residential accommodation
Owner-occupied Airbnb
Restaurant, café, pub or retail unit with flats above it
Professional practices such as a doctor’s surgery or dental practice that includes residential accommodation
Offices with separate access to residential property
Kennels or catteries with a house attached.

Any property that has both a commercial element and living accommodation can qualify as semi-commercial.

Do I need a semi-commercial mortgage if I run a business from home?

You won’t usually need a semi-commercial mortgage if you run your business from home. A standard residential mortgage will typically be the most suitable option for those with a home office.

But you might need a semi-commercial mortgage if any of the following apply:

The business is using a large proportion of the property
You plan to make significant changes to the property to run the business
The property is part-commercial.

Am I eligible for a semi-commercial mortgage?

You can apply for a semi-commercial mortgage as an individual or partnership, a limited company or a limited liability partnership.

However, exact eligibility criteria can vary depending on the lender and the following factors:

Your personal and financial situation: Lenders will want to be confident you can afford your mortgage repayments.
Your credit score: The higher your credit score, the more likely you will be accepted and secure a competitive interest rate.
Your business performance: Eligibility can also depend on your business’s financial health. Lenders may need to see your business’s projected income to determine whether you can comfortably cover the cost of the loan.

When assessing risk, the lender will consider both the rental income from the residential portion of the property and the rental income from the commercial part.

Some mortgage providers might also prefer to lend to experienced property investors rather than first-time commercial property buyers.

What are the minimum and maximum loan sizes for semi-commercial mortgages?

Some lenders will typically borrow upwards of £50,000 with a semi-commercial mortgage. Many lenders have no maximum loan size. It is worth noting that, the costs involved with arranging this facility (valuation, arrangement fees, solicitors fees) often outweigh the benefits when borrowing a lower amount.

But again, the amount you can borrow will depend on factors such as your credit rating and affordability, as well as your business’s financial health. Lenders will require you to have at least a 25% deposit.

What will the semi-commercial mortgage rate be?

Rates for a semi-commercial mortgage will usually be higher than for a residential mortgage. That’s because semi-commercial mortgages are viewed as higher risk.

But the rate you pay will depend on factors such as:

Your credit history
The financial security of your business
The size of your deposit
The property type.

You can usually choose from fixed-rate mortgages, where the interest rate and your mortgage repayments stay the same for the duration of the deal (often two to five years). Or you can choose a variable rate mortgage, where the interest rate could go up or down depending on market conditions. This means your monthly repayments could also fluctuate.

What is a good rate for a semi-commercial mortgage?

Semi-commercial mortgage margins could range from 3% to 12%, with a good mortgage rate being at the lower end of the scale – typically around 2% to 5%.

The best rates will be reserved for those with a good credit history and a financially secure business.

Interest-only vs capital repayment mortgages

You can normally choose between an interest-only mortgage and a capital repayment mortgage.

If you choose a capital repayment mortgage, you’ll pay off a portion of the capital, as well as interest, each month, so that the amount you owe decreases over time. At the end of the term, the loan will have been fully repaid.
If you choose an interest-only mortgage, you only pay off the interest on the loan, resulting in lower monthly repayments and boosting your cash flow. However, at the end of the term, you’ll need to pay off the original sum borrowed.

What fees are charged on semi-commercial mortgages?

Some of the fees you can expect to pay on a semi-commercial mortgage include:

Lender arrangement fee: You’ll usually be charged a fee to arrange the loan and this can be around 1% to 2% of the amount borrowed. This fee can either be added to or deducted from the loan.
Valuation fee: Before your mortgage can be approved, a lender will arrange for a valuer to visit the property and value it. Fees can be higher for commercial mortgage valuations than for residential mortgages because the report will be more comprehensive. The amount you pay can depend on the value of the property and its location.
Legal fees: You’ll need to pay both your own and the lender’s legal fees. They can start from £500 each.
Early repayment fees: It’s worth checking whether your mortgage has an early repayment charge. This will apply if you pay off your mortgage before the end of the term.
Broker fees: You might also need to pay a fee if you use a broker to help you find the right semi-commercial mortgage. Brokers that don’t charge a fee often use lenders that pay them the highest ‘introducer fee’ and might not be completely transparent about this. At Swoop, we believe in full transparency and disclosure. Our standard arrangement fee is 1.5% of the loan amount payable on a success-only basis. However, each deal is individually priced by our experienced Commercial Finance Managers who will take the time to understand your requirements and tailor a solution with bespoke pricing.

Are semi-commercial mortgages regulated?

In most cases, commercial mortgages are not regulated by the Financial Conduct Authority (FCA). This means if you’re investing in a property which has both residential and business use, your mortgage won’t be regulated.

However, if more than 40% of the property is classed as residential, you won’t be able to take out an unregulated semi-commercial mortgage on it and will need an FCA-regulated mortgage.

What documents are required when applying for a semi-commercial mortgage?

When applying for a semi-commercial mortgage, you will typically need to provide the following documents:

Your completed application form
Three to six months of personal bank statements
Three to six months of business bank statements
Income and expenditure information
Owner occupiers will need to provide two years of accounts.

How long does a semi-commercial mortgage application take?

It will usually take six to 12 weeks for your semi-commercial mortgage to complete. But this can vary depending on the lender and whether you’ve provided all the required information upfront. If you need to provide additional information, this can slow down the process.

What is the process for getting a semi-commercial mortgage?

As a first step, it’s best to speak to a commercial mortgage broker. A highly experienced commercial mortgage broker can help you find the right semi-commercial mortgage to meet your personal and financial circumstances. They’ll be able to find lenders that are more likely to accept your application and can also offer support when completing your mortgage application.

Swoop’s team of specialists are professionals in their fields. We work with borrowers, using our knowledge, experience and skills to present deals to lenders in the best shape possible. We can help you find the best mortgage rates and do the hard work for you, using our experience and knowledge of lenders’ appetite and criteria. This means we can get your application in front of the right lenders and underwriters as quickly as possible, saving you time and effort.

Which lenders offer semi-commercial mortgages?

Several types of lenders will offer semi-commercial mortgages. These include:

High street banks: Some traditional banks offer semi-commercial mortgages. However, they tend to have tighter lending criteria, often requiring borrowers to have a good credit history, experience in the commercial property market and a financially healthy business.
Challenger banks: These banks often have more flexible lending criteria and may even be willing to lend to those with lower credit scores. The rates on offer from challenger banks have also become more competitive in recent years.
Specialist online lenders: Certain lenders will focus specifically on mortgages for commercial and semi-commercial properties They can be the most flexible option, but in return, you’ll usually pay higher interest rates. These lenders will often accept applicants with poor credit or those with short leases.

Get started with Swoop

Getting the right mortgage at the right price at the right time is critical to an investor’s success. Our team at Swoop would be happy to discuss your requirements with you to help you find the right commercial deal and support your application. Begin with the best deal to give your project the best start possible. Apply now.

Written by

Rachel Wait

Rachel has been writing about finance and consumer affairs for over a decade, helping people to get to grips with their finances and cut through the jargon. She's written for a range of websites and national newspapers including MoneySuperMarket, Money to the Masses, Forbes UK, and Mail on Sunday. Rachel has covered almost every financial topic, from car insurance and credit cards, to business bank accounts and mortgages.

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