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The best way to refinance a Semi-Commercial Investment Property:
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?
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What are the pros and cons of each potential option?
Please note that Advocate Finance does not carry out the legal process of splitting title deeds. Title splitting is a legal matter and should be handled by a suitable solicitor with experience in this area. Advocate Finance can provide basic guidance from a finance perspective and help arrange the mortgage or refinance options connected to this type of strategy.
Here at Advocate Finance, we have experience arranging finance for semi-commercial properties, mixed-use assets and cases where a client is considering whether to keep the property on one title or refinance separate elements after a legal title split.
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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 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 has access to lenders who may be able to offer competitive semi-commercial mortgage options on properties that are kept on one freehold title.
Additionally, some lenders can use title insurance on a refinance. This can speed up completion timescales and may help the refinance complete more quickly once the mortgage offer has been 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 in the larger loans.
We are able to refinance the residential part of the property on its 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 rate. This is particularly advantageous when the residential value of the property is substantially greater than the commercial part of the property.
However, the legal title split itself must be handled separately by a solicitor. Advocate Finance can advise on the finance options available once the legal position and title structure are clear.
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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 | |
| Value | £1,000,000 | £150,000 |
| Loan size | £750,000 | £112,500 |
| Rate | 3.2% 5-year fix | 5.89% 5-year fix |
| Fee’s | £5,000 arrangement fee / £299 application fee / Free valuation | 1.5% arrangement fee / £1,000 valuation fee |
| Monthly Payment | £2,013 | £552 |
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 | |
| Value | £1,150,000 |
| Loan Size | £862,500 |
| Rate | 4.74% 5-year fix |
| Fee’s | 1.5% arrangement fee /
£2,250 valuation fee |
| Monthly Payment | £3,406 |
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 its 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 is not as high, or if there is only one flat above a shop, the difference in value between the individual elements may not be as significant. In that situation, keeping the property as one semi-commercial asset may be the better option.
This further underlines the importance of looking at the client’s individual circumstances before deciding which route may be most suitable.
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How can Advocate Finance help?
Advocate Finance does not handle the legal process of splitting title deeds. You would need to speak to a suitable solicitor to confirm whether the title split is possible and to complete the legal work.
What we can do is advise on the mortgage and refinance options connected to a semi-commercial property or a title splitting strategy.
This may include looking at whether the property is better financed as one semi-commercial asset, or whether separate finance options may be available after the commercial and residential elements have been legally split.
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