What makes a semi-commercial property a smart investment? In this blog, we share the key features to look out for, lending criteria, and the factors to consider before investing.
Semi-commercial, or mixed-use property, combines residential and commercial elements, for example, a shop with flats above, making it a great addition to any property portfolio.
These property types continue to grow in popularity, with higher rental yields than standard buy to lets and an exemption from the 5% Stamp Duty surcharge.
For investors looking to purchase their first semi-commercial property, or those looking for tips and tricks for finding a great new investment, this blog covers:
- What makes a great semi-commercial investment
- Lender criteria to consider
- How to secure the right finance
Key Features of a High-Quality Semi-Commercial Property
When looking for the right semi-commercial property, it’s essential to consider 3 main things:
- Rental demand
- The commercial lease
- Development potential
Rental demand
You’ll want to focus on areas with strong rental demand for residential and commercial units. Commuter towns and cities are great for attracting renters, so a property in this location should ensure sufficient demand for the residential elements.
Likewise, you’ll want to make sure that there’s enough demand for the commercial unit. If there are several vacant commercial premises in the area, it’s probably not the best location for your investment. Furthermore, an area with good footfall and commercial viability will reassure a lender about your application.
The commercial lease
Typically, lenders need to see a long-term commercial lease on the property. This shows that the property generates sufficient rental income and it’s a viable commercial investment.
A lease of 5 years or more with a reputable tenant should strengthen your application. It should support the affordability assessment and reduce the lender’s perceived risk. Many lenders are unlikely to offer if the commercial element is vacant or on a short-term lease.
Development potential
Properties with permitted development rights or scope for conversions offer longer-term value and potential, making them more favourable amongst lenders. Having plans or approvals in place can equally strengthen your application.
Lending Criteria: What Do Lenders Look For?
As a general rule, lenders look for the following when assessing your application:
- Minimum deposit: Typically, you’ll need at least 25% for semi-commercial properties
- Experience: Whilst lenders prefer applicants with experience in the property market, some can offer to first-time investors. However, higher rates and tighter affordability restrictions may apply
- Income assessments: For semi-commercial properties, lenders assess the rental income from both the residential and commercial elements when completing their affordability assessments
- Separate access to residential unit: Properties with separate access to the residential units may allow you to borrow more
- Living in the residential unit: If you plan to live in the residential element, your application is more complex. Lenders may need to assess their consumer buy to let criteria, which can impact which products you can access
Semi-Commercial Mortgage Rates
Semi-commercial rates are typically more expensive than standard buy to let rates because it is a more complex property investment type.
Working with a specialist whole-of-market broker (like us!) gives you access to the most competitive deals. Moreover, we can offer exclusive products that are unavailable when applying directly to a lender.
>> Explore current semi-commercial mortgage rates.
Other Factors to Consider Before Investing
Before purchasing a semi-commercial property, there are a few other factors to consider besides mortgage rates and lending criteria.
Stamp Duty Land Tax
Stamp Duty can be a significant cost. Whilst there is an exemption from the 5% surcharge, semi-commercial properties often fall under commercial Stamp Duty Land Tax (SDLT), which has its own thresholds and different rates to residential purchases. This can significantly increase your purchase costs, so it’s important to budget correctly.
Maintenance costs
Maintenance and management costs can be higher for semi-commercial properties. This is because the commercial unit may require more frequent upkeep to comply with health and safety standards, and insurance costs may be higher. You’ll also need to factor in the time and costs of managing buy to let tenants.
Planning permission
Planning permission is another key factor to consider. If you’re considering converting part of the property, you’ll need to ensure the building has the correct use class and that your plans comply with local planning policy. Overlooking this can impact and delay your mortgage application.
Is a Semi-Commercial Property Right for You?
While there is a lot to consider before investing in semi-commercial property, the benefits can significantly boost your profits and your property portfolio.
Our experience within this complex market means we’re best positioned to support you with your application and any questions you might have.
If you’re considering a semi-commercial investment, get in touch with our team! To talk through the process and the mortgage options available, call us on 0345 345 6788 or submit an enquiry here.
Getting started with semi-commercial investment
If you’re considering a semi-commercial investment, get in touch with our team!
To talk through the process and the mortgage options available, call us on 0345 345 6788 or submit an enquiry here.
