Semi-commercial mortgage LTV: how much can you borrow
What loan to value to expect on a mixed-use property, and the second test that often sets the real ceiling on the loan.
Semi-commercial mortgages usually run up to 70 to 75 percent loan to value, so you fund a deposit of 25 to 30 percent. On investment deals a second test applies: the combined commercial and residential rent must cover the interest at an interest cover ratio, commonly 125 to 140 percent stressed. The maximum loan is the lower of the loan to value cap and the figure the rent supports, which is why both are worked out before a figure is quoted.
At a glance
- Typical LTV70 to 75 percent of value
- Deposit25 to 30 percent
- Second testInterest cover ratio on rent
- Maximum loanThe lower of the two
What loan to value to expect
Loan to value is the loan as a percentage of the property's value. On a semi-commercial or mixed-use asset most lenders go up to 70 to 75 percent, with 75 percent available on stronger cases and occasionally more where extra security is offered. That is broadly in line with commercial property, where 65 to 75 percent is the normal range, and a little below residential buy-to-let.
On a £500,000 shop with a flat above at 75 percent loan to value, the loan is £375,000 and the deposit is £125,000. A lower loan to value usually buys a keener rate, because the lender's risk falls as your stake rises.
A request at 60 or 65 percent loan to value is welcomed, not penalised. The lower the loan against the value, the lower the lender's risk and the better the pricing tends to be.
The second test: interest cover
On investment deals the loan to value cap is only the first hurdle. The lender then checks that the rent covers the interest with a margin, the interest cover ratio. A common requirement is that the combined commercial and residential rent equals 125 to 140 percent of the interest, calculated at a stressed rate above the pay rate.
Where the rent is thin against the value, this test, not the loan to value, sets the maximum loan. A keenly valued asset with modest rent can be capped well below 75 percent by interest cover, while a strongly let asset reaches the full loan to value comfortably.
How the maximum loan is set
The maximum loan is simply the lower of the two figures: the loan to value cap and the amount the rent supports at the required interest cover. A lender runs both and offers against whichever is smaller, which is why a realistic quote needs the value, the rent on each part and the split between commercial and residential.
On an owner-occupied deal, where you trade from the commercial unit, the affordability test shifts from rent to the trading profit of the business, but the loan to value cap still applies.
How loan to value differs across the finance types
Loan to value is not one number across all semi-commercial finance; it varies by the product. On a term semi-commercial mortgage, the mainstream route for most landlords, lenders run to 70 to 75 percent loan to value. On semi-commercial bridging, a short-term loan to buy fast or before a unit is let, the loan to value is often similar against value but the specialist lender sizes it on the gross loan including rolled-up interest. On development finance, used to convert or build out an asset, funding is measured against loan to cost and the end value rather than a simple loan to value.
Comparing these products matters, because the same property can support a different loan depending on the route. A landlord buying to hold reaches the full loan to value on a term mortgage; a buyer racing a deadline may take a lower net figure on a bridge, then refinance onto a commercial mortgage later. We run the case across the whole panel of semi-commercial mortgages, bridging loans and development finance and place it where the loan to value and the terms fit.
The interest rate moves with the loan to value across these products: a lower loan to value on a semi-commercial mortgage earns a keener interest rate, while bridging loans and short-term products price higher for their speed. Portfolio landlords running several semi-commercial mortgages can sometimes agree terms across the book, but on every one of these loans the loan to value cap and the rent test still set the ceiling.
What moves your loan to value
Within the band, several things push your loan to value up or down:
- A strong, long, unbroken tenancy on the commercial unit supports a higher loan
- A larger residential share can lift loan to value, as flats are seen as easier to re-let
- A specialist or weak commercial use, or a short lease, pulls it down
- A clean borrower profile and clear exit support the top of the range
We size both tests before going to a lender and place the case where the asset and the rent reach the loan you need. We arrange finance for business and investment borrowers, which is unregulated lending; where an individual will occupy the residential element, the case can be regulated and we refer it to a regulated firm.
- Loan to value
- The loan as a percentage of the property's value; 75 percent loan to value on a £500,000 property is a £375,000 loan.
- Interest cover ratio
- The rule that rent must exceed the interest by a set margin, commonly 125 to 140 percent at a stressed rate.
- Stressed rate
- A higher notional interest rate a lender uses to test that the rent still covers the loan if rates rise.
Semi-commercial mortgage LTV: how much can you borrow: common questions
What is the maximum LTV on a semi-commercial mortgage?
Usually 70 to 75 percent of value, with 75 percent on stronger cases and occasionally more where extra security is offered. On investment deals the rent must also cover the interest at the lender's interest cover ratio, and the lower of the two figures sets the loan.
How much deposit do I need for a semi-commercial mortgage?
Typically 25 to 30 percent of the property value, matching a 70 to 75 percent loan to value. On a £500,000 mixed-use property at 75 percent, that is a £125,000 deposit and a £375,000 loan.
Is 75 percent LTV high for a semi-commercial mortgage?
No. 75 percent is at the top of the normal range for mixed-use property and is a standard request on a well-let asset. It is not a sign of a stretched deal; it is the usual ceiling, with the rent and interest cover deciding whether the asset reaches it.
Can I get a low loan to value semi-commercial mortgage?
Yes, and it is welcomed. A request at 50, 60 or 65 percent loan to value carries less risk for the lender and usually attracts keener pricing. There is no minimum loan to value problem; a larger deposit strengthens the case.
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