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Semi-Commercial Mortgages – Splitting Title Deeds


Semi-Commercial Mortgages – Splitting Title Deeds

Are you unsure about the best way to finance a semi-commercial investment property? Should you refinance / purchase the property as a whole or should you split the title deed to separate the commercial element from the residential? What are the pros and cons of each potential option? Fortunately, here at Advocate Finance, we are experts in this area of commercial lending and we have access to a large range of lenders and products that will best suit the scenario you are faced with when it comes to semi-commercial assets.

What is a semi-commercial property?

Quite simply, a semi-commercial asset is a property that consists of both commercial and residential elements on one freehold title deed. More often than not, this is usually a single flat / block of multiple flats above a trading business.

Financing a semi-commercial property as one unit

Due to the nature of the property, the interest rates available on semi-commercial assets are a higher than those lending to pure residential properties. Regardless, this is not to say the options available are not good ones. By keeping the property on one freehold title means there is no need to pay the stamp duty charge and solicitor fees that are associated with transferring the commercial / residential element onto its own separate legal title – unless of course there is stamp duty relief available (transfer between husband and wife and between group companies for example) but the legal fees will still apply. Advocate Finance have a lender who can go up to 75% loan to value on market leading interest rates on semi commercial properties that are kept a one freehold title. Additionally, some lenders can use title insurance on a refinance .This can speed completion time scales up to within 1 week of the mortgage offer being issued.

Financing the property as multiple units when title deeds are split

Due to the difference in residential interest rates and commercial interest rates, more often than not, splitting the title on a semi commercial asset can provide a huge amount of savings on mortgage costs. This is especially evident on the larger loans .We are able to  refinance the residential part of the property on it’s own, with a competitive buy to let lender, and then keep the commercial elements separate by financing this with a commercial lender on the higher rates. This is particularly advantageous when the residential value of the property is substantially greater than the commercial part of the property.

Case Study / Example – 8 flats above an office
Value of the unit as one title – £1,150,000
Value of the 8 flats once split – £1,000,000
Value of the commercial office once split – £150,000
Because the units had been split off onto two separate titles we could refinance the 8 flats with one lender and the office with another
8 flats
1 commercial office
Loan size
3.2% – 5 year fix
5.89% – 5 year fix
£5,000 arrangement fee / £299 application fee / Free valuation
1.5% arrangement fee / £1,000 valuation fee
Monthly payment
Interest rates terms are typical as of April 2022 and subject to change
Total cost per month £2,565
See below what the mortgage payments would have been if the title deeds were not split on this property and it was financed as one block
8 flats + 1 commercial office
Loan size
4.74% – 5 year fix
1.5% arrangement fee /
£2,250 valuation fee
Monthly payment
Total cost per month £3,406
In this example, you are saving circa £840 a month on mortgage payments by splitting the titles, which equates to £50,400 over the fixed 5 year period.
Obviously, as previously mentioned, you would have incurred a relatively high stamp duty charge and solicitor fees that are associated with transferring the commercial / residential element onto it’s own separate legal title (unless SDLT relief was gained) and also the need for two separate mortgage applications. Nevertheless, you can clearly see the pros of doing this.
However, if the overall property value isn’t quite as high or it is only 1 flat above a shop so the difference in their individual values isn’t as high for example, then this is where the semi-commercial proposition becomes a great option and further underlines that we have great options that suit your own circumstances in the best way possible when it comes to semi-commercial investment.
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Henry Barley – Property Finance Adviser

Email: Henry@advocatefinance.co.uk

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