Semi Commercial Mortgages - Mortgages for Mixed-Use Properties

An Introduction to Semi Commercial (Mixed-Use) Property Investment Mortgages

What is a mixed-use property?

In layman’s terms, mixed-use property is a combination of a residential property (whether that be a buy-to-let or a standard home) and a commercial premises. Some examples of mixed-use properties include an office, store or retail outlet with a domestic residence above it, all of which are included in the same freehold agreement. Other examples include guesthouses in which the owners themselves live and public houses above which the proprietor has a permanent residential address.

The following topics are covered below:

How does a mixed-use property differ from other investments?

Why are mixed-use property investments so in-demand right now?

How can I obtain a mortgage for a mixed-use / semi commercial property investment?

Do I require any experience to apply for a mixed-use / semi-commercial property mortgage?

How does a mixed-use property differ from other investments?

Due to the commercial aspect contained within every mixed-purpose property, obtaining a mortgage for one requires the involvement of a commercial mortgage provider. These providers generally assess individual applications on their own unique merits, giving more attention to the particulars of the specific situation than they might with a normal buy-to-let property.

This is largely due to the fact that there are a greater number of factors at play which they must consider, such as the specific kind of tenant lease that the commercial side of the investment will necessitate. Despite the fact that mixed-use property investments demand a specialised type of mortgage, we are able to search among different providers who offer this specific product and locate the one that is best suited to your particular circumstances.

Why are mixed-use property investments so in-demand right now?

Mixed-use properties are regarded by the government as commercial investments, which means landlords can take advantage of their profit and loss account by offsetting any costs incurred and loan interest accrued against it. What’s more, mixed-use properties do not entail a 3% surcharge on stamp duty, which buy-to-let apartments with no commercial aspect do.

To make them even more attractive, mixed-use property investments often perform better than residential buy-to-let properties, as well. At present, mixed-use properties generally return around 8.7% on average, while a standard buy-to-let property is only capable of an average yield of 5.8%. Moreover, the associated expenses of upkeep and maintenance are generally lower in a mixed-use property. This is because tenants of a commercial property are regarded as responsible for taking care of any repairs or other maintenance works, while a residential landlord would be expected to undertake these themselves.

On the other hand, it should be remembered that mixed-use properties can be much more complex when it comes to quantifying their rate of capital growth, despite the higher yields. This is down to the fact that the process of determining a valuation for mixed-use properties takes in a greater number of factors than a standard buy-to-let property.

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How can I obtain a mortgage for a mixed-use / semi commercial property investment?

As mentioned above, a mortgage for a mixed-use property investment can only be obtained through a commercial mortgage lender. They will then calculate the cumulative rental income of both the commercial facet and the buy-to-let residence to arrive at a figure of how much borrowing capital you will be able to access. Because the interest rates for commercial and semi-commercial mortgages are slightly higher than those for standard buy-to-let properties, the amount of money available to you may be significantly different, as well.

However, this difference might not be as pronounced as you may expect, with certain commercial mortgage lenders offering variable rates beginning at 3.24% over the London Inter-Bank Offered Rate (LIBOR), with a loan-to-value (LTV) ratio of 55%. Meanwhile, the fees imposed on individual products typically begin at around 1.50%, which is added to the overall value of the loan itself. In any case, each commercial mortgage lender will offer a varied range of options, so it’s a good idea to discuss your unique needs with your broker so that they can help you to find the best product for your circumstances.

In certain situations, where the buy-to-let aspect comprises over half of the freehold value and the rental income is sufficient to meet the repayments of the mortgage, there are some mortgage providers who will waive the commercial aspect of the property altogether and offer a product based solely on the residential component. The primary advantage of this arrangement is that you can access a slightly reduced rate of interest, with some providers offering mortgages that begin at 2.95%. There are also a range of other incentives, including free valuations, cashback offers and other perks intended to sweeten the deal. We can connect you with these mortgage providers if that is an avenue you wish to pursue.

Regarding minimum income requirements, some providers stipulate that all applicants must earn a minimum of £25,000 per annum, while others only require one which is sufficient to meet repayments and equipped to withstand any downtime or void periods.

Do I require any experience to apply for a mixed-use / semi-commercial property mortgage?

Because mixed-use property investment is, by its very nature, a more complex animal than standard buy-to-let investments, most mortgage providers will demand that you have at least some experience in the latter before approving an application for the former. The length of this experience can vary between six months and three years, depending upon the mortgage provider in question.

NB All figures stated in this article are accurate as of 8^th November, 2019.