Semi-commercial mortgages aren’t something you come across or need in life but there might be times where you do need to enquire about one, especially when it comes to properties that have both residential and commercial elements.
These types of mortgages are a popular option for first-time investors, looking for higher rental yields, as well as diversified income streams.
In this guide, we’ll look at the key features of a semi-commercial mortgage and how it works for first-time investors who are exploring this option.
Key features of a semi commercial mortgages
Buildings combining commercial units such as shops, pubs and surgeries that have one or more residential living spaces will be eligible for these types of mortgages.
The loan-to-value (LTV) is typically up to 75% of the property value. A minimum deposit of 25% is required and interest rates are general a lot higher for these types of properties than residential mortgages. However, they are lower than pure commercial mortgages.
Mortgage terms for these types of mortgages usually range from 5 to 30 years, offering flexibility for those looking at long-term investment. Both capital repayment and interest-only options are generally available with a semi commercial mortgage.
Mortgages in this case are often unregulated unless the owner themselves intends to live in more than 40% of the property themselves. These types of properties are fortunately subject to non-residential Stamp Duty Land Tax rates which results in significant savings compared to the 3% residential surcharge.
How it works for first-time investors
For first-time investors, it’s important to know how these mortgages work and how to get the best out of it.
Eligibility
Many lenders will accept first-time commercial investors. However, it’s good to know that having previous buy-to-let experience can be advantageous when looking to secure better rates.
Income assessment
Lenders will primarily assess affordability, based on the total projected rental income of both the commercial and residential units. It’s important to have an income to cover 125-150% of the mortgage payment.
Deposit and costs
A larger deposit and funds will be required in order to cover higher valuation and legal fees, which are all necessary as upfront costs.
Diversification
The primary benefit for investors is the ability to diversify income streams. This reduces the risk of total loss of rent if one unit becomes vacant.
Top tips for success
To get the best success with semi commercial mortgages, it’s best to work with a specialist broker. A commercial finance broker will be able to provide access to specialist lenders and navigate the complexities of the process a lot more efficiently.
It’s good to have clean, financial records and a clear business plan if applicable, as well as tenancy agreements so that you can best streamline the process.
A good understanding of the market is important, conducting thorough due diligence on local commercial and residential rental markets, as well as foot traffic and demand for both types of units.
With this all understand, first-time investors can often make informed decisions when venturing into semi commercial properties.
