August 16, 2022

What is a Semi-Commercial Property?

Semi-commercial properties can cover a raft of different property and commercial elements. These always have a residential element but may have various different commercial elements: 

  • Offices
  • Retail units
  • Medical and veterinary practices
  • Hotels and guest houses
  • B&Bs with separate residential accommodation
  • Restaurants and cafes
  • Other commercial use properties. 

What does a Lender want to know about a Semi-Commercial Property

  • How the building and commercial elements are structured
  • Are there separate leases, or a single freehold title?
  • Are the units rented out to third parties on commercial leases?
  • How long does the lease have prior to expiry and are there any break clauses within the lease?
  • If the property is an owner-occupied unit where a business owned by the commercial owner is trading, this will play a part in the lending considerations. Some lenders prefer one over the other. Others may not mind. 

It is important to be able to answer questions on the split of the building itself. What percentage is residential and what percentage of the building is commercial? You can break this down into three categories: 

  • The value split between the residential and commercial elements. 
  • The split in sqft/sqm between the residential and commercial elements. 
  • The split in rental values ( if the commercial is rented out to a third party ) between the residential units and the commercial unit will also aid the speed of your application. 

Lenders may have specific parameters set out, and therefore the provision of this information will help the application process.

For buildings with low percentage of commercial lenders, some lenders will lend on the building as if it were fully residential.

Things to Consider about Semi-Commercial Properties.

Recently a number of building societies, challenger banks and alternative finance groups have entered the semi-commercial lending space so there are lots of options out there.

  • Your choice should be governed by what you are looking for from the facility.
  • The majority of clearing banks will want the loan to amortise over a period of time.
  • the demonstration that the rental income can afford this will be key to a successful application.

The majority of the challenger banks may allow an interest-only facility, but it is always important to remember that the debt will remain unpaid unless overpayments are made, which can take great discipline as a borrower. It may be helpful during periods of vacancy, however it’s important to remember that if the overpayments are not being made, the facility will have to be paid back at the end of the term of the loan. 

Owning semi commercial properties also may require further regulations due to the nature of the buildings in place. Whilst single flats on leases may have requirements from a letting perspective such as:

  • Gas safety certification
  • EPC ratings
  • Electrical certifications

Whole buildings may require further regulatory requirements that would fall under the freeholder. These include but may not be limited to:

  • Fire regulation certificates
  • Asbestos reports

There is also a code of renting out commercial properties, and whilst this is not obligatory, it is a useful guide to requirements for renting out commercial spaces. 

What are the Costs Associated with Semi-Commercial Properties?

There may be additional costs with insurance due to the commercial element of the building, as well as costs relating to a landlord’s responsibility for:

  • Cleaning
  • Maintenance of communal spaces
  • Ventilation
  • Temperature
  • Lighting
  • Hygiene
  • The safety of the water supply. 

It is important to inform insurers if the property is untenanted or empty as this can also affect your insurance, especially in the event of a claim. 

It is also important to remember that stamp duty rates and potential legal fees may differ to residential properties so ensure that you have checked these out prior to purchasing. 

Provide can supply you with a spreadsheet, which may be helpful to your application or enquiry breaking down the crucial information specifically for semi-commercial properties, in an easily digestible format for lenders. Our team of financial experts are happy to go over all of the possible options with you, and connect you with lenders that are right for your specific loan criteria.

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