Why mixed-use property needs a specialist approach
Mainstream residential lenders do not usually lend on property with a commercial element, and some commercial lenders are cautious about residential parts. Semi-commercial bridging fills that gap, and it is often used where a property needs time, a new tenant or works before it qualifies for a longer-term mortgage.
Lenders look at the proportion of the building and its value that is commercial. Where the residential part is the majority, many lenders treat the property close to residential, which can mean a higher loan to value. Where the commercial part dominates, terms are usually closer to commercial bridging. The exact cut-off varies between lenders.
Typical loan to value for semi-commercial bridging is up to around 65% to 75%, depending on the split, the location and the lender.
Leases, tenants and vacancy
The commercial part of a mixed-use building is valued largely on its income and the strength of its lease, or on what it could achieve if let. Lenders and valuers will look at:
- The length of the commercial lease and any break clauses
- The tenant, their trading history and whether the rent is at market level
- Whether the residential parts are let on assured shorthold tenancies, long leases or are vacant
- Planning use classes and any restrictions on the commercial use
- Separate access to the flats and whether the parts could be sold separately
A vacant commercial unit can reduce the value and narrow the choice of term lenders. Bridging gives time to re-let it, and the improved income can support a refinance at a better value.
Works and conversions
Many semi-commercial purchases involve works. Refurbishing the flats above a shop, bringing them up to letting standard or creating extra units from storage or upper floors are common projects. Some of these changes need planning permission, while some changes of use from commercial to residential can use permitted development rights, subject to prior approval.
Lenders that fund semi-commercial refurbishment usually release works funding in stages after inspection, and may size the facility against the value after works. For larger changes, heavy refurbishment or development finance may suit better.
Check fire separation between the commercial and residential parts, and minimum energy performance standards, which apply to most let commercial and residential property in England and Wales.
Exits and timing
The usual exit is a refinance onto a semi-commercial or commercial mortgage, or a sale. Term lenders look at the rental income against the loan payments, the lease terms and the overall value, so the refinance case is strongest once both parts are let on sound terms.
Some investors split the title, selling or refinancing the flats separately from the commercial unit. That requires leases, separate services and management arrangements, which take time to set up.
We compare lenders on how they treat the commercial and residential split, the loan to value and the exit, then approach suitable lenders. Instant Quotes gives indicative figures as a starting point, and final terms depend on each lender's valuation and checks.
Who semi-commercial bridging suits
Semi-commercial bridging suits investors buying mixed-use buildings to improve and re-let, business owners buying premises with accommodation, and developers adding residential units to commercial buildings. It is also used to refinance mixed-use property where a lease is ending or a term lender's deadline has passed.
Where both parts of the building are already let on sound terms and a semi-commercial mortgage can be arranged within the timescale, longer-term finance is normally cheaper. We look at whether a bridge is the right tool before comparing lenders.
If you or your family will live in part of the property
If the borrower is an individual or the trustees of a trust, and at least 40% of the property is, or will be, lived in by you or a close family member, the loan is a regulated mortgage contract with additional protections. A shop owner living in the flat above is a common example. We will tell you at the outset if that applies and how your case will be handled.
Your home or property may be repossessed if you do not keep up repayments on a mortgage or any other debt secured on it.
