Getting to grips with semi-commercial property

by: Charles Haresnape, group managing director, mortgages, Aldermore
  • 14/04/2016
  • 0
Getting to grips with semi-commercial property
Advising on semi-commercial mortgages can add an extra string to the bow of residential mortgage brokers, Aldermore's group managing director, mortgages, Charles Haresnape, takes a closer look at this diverse property class.

Quite simply, a semi-commercial property is a property that has both a commercial element and a residential element to it. For example, shops which have flats or living space above them are one of the most common forms of semi-commercial property, but B&Bs, pubs or any business that would require employees to have accommodation on site, such as a kennel service, would qualify for this definition.

Existing rules state that if the residential aspect of a semi-commercial property occupies any more than 40% of the overall floorspace (as well as being occupied by a common tenant) then loans will be regulated.

Property yields

One of the most significant factors affecting the yield of a semi-commercial property is the ratio of the split between the commercial and the residential aspect. Many properties that are arranged in this configuration are yield driven on the ground floor commercial aspect, based upon the strength of the occupier, and area driven on the residential aspect based upon residential values in the area.

For example, if your ground floor unit is occupied on a long lease to a major supermarket, this will most likely attract a lower yield (and thus higher value) than a unit let on a short lease to a local convenience store.

There can be exceptions here based on whether a tenant may be put off by the commercial aspect of the property, such as a pub or music venue.

Finance options and tax changes

There are several options available to those seeking finance for semi-commercial properties, and lenders have often provided overall package deals. A common method employed by commercial landlords who have bought these units is, by splitting the commercial and residential aspects onto separate titles, then the value of the separate units is higher than the value of the individual units combined .

If the residential component is on a separate title then it will be viewed as an individual residential unit and subject to the new tax treatment, however, it is always wise to contact a tax adviser if you are unsure about any aspect.

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