Semi-commercial mortgage deposit

How much deposit do you need?

A semi-commercial mortgage typically requires a deposit of 25 to 30 percent of the property's value. That is the gap left after a 70 to 75 percent loan to value, which is the standard ceiling for these assets.

The exact figure depends on the property, the income and the borrower. A well-let mixed-use asset with a solid commercial covenant sits at the lower end; a specialist or part-vacant property sits higher.

What affects the deposit

• The commercial covenant: a strong, long-let commercial tenant supports a higher loan
• The residential element: a well-let flat above diversifies the income
• The commercial-to-residential split and the use class
• The combined rent against the interest cover ratio
• Your experience, credit profile and structure

Anything that strengthens the lender's view of the income or the security can move the deposit toward 25 percent rather than 30.

How loan to value sets the deposit

The combined rent must also clear the lender's interest cover ratio at the chosen loan to value, so a high loan needs strong rent to support it.

On a 400,000 pound purchase, that means 100,000 pounds at a 75 percent loan to value, 120,000 at 70 percent, and 140,000 at 65 percent. The weaker the income or the more specialist the use, the lower the loan to value and the larger the cash deposit required.

Deposit for a limited company purchase

Most investment semi-commercial property is bought through a limited company or SPV. The deposit requirement is broadly the same as for personal borrowing, at 25 to 30 percent.

Lenders will usually want personal guarantees from the company directors, and will check the source of the deposit funds, whether from cash, other property or shareholder loans. A clear paper trail on the deposit, especially where it comes from a shareholder loan or another property, smooths underwriting.

What counts toward your deposit

The deposit does not have to be cash alone. Lenders will often recognise:

• Cash in the company or your own name
• Equity released from another property you own
• A genuine below-market purchase, where the valuation supports it
• Additional security over another asset to lift the effective loan to value

Each of these has conditions. Released equity has to be documented and the source property valued; a below-market purchase has to be supported by the valuer, not just claimed; and additional security puts the second asset at risk if the loan is not repaid. We weigh which route fits before relying on it.

Where the deposit comes from

Lenders check the source of the deposit as part of their anti-money-laundering and affordability work. The cleanest sources are straightforward to evidence:

A clear, documented trail on the deposit speeds the case and avoids questions late in underwriting that can hold up completion.

How to reduce the deposit

1. Strengthen the income evidence so the lender supports a higher loan to value
2. Offer additional security over another property you own
3. Buy below market value and have the discount evidenced by the valuer
4. Improve the commercial covenant, for example by securing a longer lease
5. Run the case across the panel to find the lender with the highest appetite for your asset

We model each route and place the case where the deposit requirement is lowest for your specific property.

Deposit, fees and the cash you actually need

The deposit is the largest cash item but not the only one. Plan also for the arrangement fee, the valuation, legal fees on both sides, and stamp duty, which on a mixed-use property is charged at the non-residential rates.

We set out the full day-one cash requirement, deposit plus costs, so there is no surprise at completion.

Loan to value

The loan as a percentage of the property's value; 75 percent loan to value means a 25 percent deposit.

Personal guarantee

A director's personal commitment to cover the loan if the company cannot, commonly required on SPV lending.