What Is Mixed-Use Property?
**Mixed-use property**, also known as semi-commercial property, combines commercial and residential elements within a single building or site. The most common example is a shop or office on the ground floor with one or more residential flats above, but the category also includes purpose-built mixed-use developments, converted buildings, and properties with a range of commercial and residential tenancies.
Mixed-use property sits at the intersection of commercial and residential lending, and financing these buildings requires an understanding of how lenders approach this hybrid asset class. This guide covers everything you need to know about securing finance for semi-commercial property in the UK.
Common Types of Mixed-Use Property
Mixed-use properties come in many forms:
Shop with Flat Above
The classic semi-commercial property. A retail unit on the ground floor with one or more residential flats on upper floors. These are found throughout UK high streets, town centres, and suburban parades. They represent one of the most common entry points for investors moving between residential and commercial property.
Office with Residential
Professional office space on lower floors with residential apartments above. Less common than retail/residential combinations but found in town centres and converted period buildings.
Pub or Restaurant with Living Accommodation
Many pubs, restaurants, and hospitality venues include residential accommodation for the operator or as separate letting units. These require specialist assessment due to the trading nature of the commercial element.
Purpose-Built Mixed-Use Developments
Modern developments designed from the outset with commercial ground floors and residential above. These are common in urban regeneration areas and are generally well-received by lenders due to their modern specification.
Converted Properties
Period buildings (former banks, churches, schools) converted into a mix of commercial and residential use. The quality of the conversion and planning consent are key factors in lending decisions.
How Lenders Classify Mixed-Use Property
One of the most important, and most confusing, aspects of mixed-use property finance is how different lenders classify these properties. The classification determines which product is used, how the property is assessed, and what terms are available.
Commercial Lender Approach
Some lenders treat any property with a commercial element as fully commercial. This means:
- Assessment based on combined rental income from all elements
- Commercial mortgage rates and terms apply
- DSCR/ICR used for affordability assessment
- Maximum LTV typically 70-75%
- Personal guarantees required
Residential Lender Approach
Some buy-to-let and residential lenders accept properties where the commercial element is minor (typically less than 30-40% of the total floor area or value). They treat the property essentially as residential, which can mean:
- Higher LTV available (up to 75-80%)
- Residential-style rates (potentially lower than commercial)
- Standard residential affordability assessment
- No personal guarantee in some cases
Specialist Semi-Commercial Products
A growing number of lenders offer dedicated semi-commercial products designed specifically for mixed-use property. These products typically:
- Assess commercial and residential elements separately
- Offer terms that blend commercial and residential pricing
- Have criteria specifically calibrated for mixed-use buildings
- Provide LTV of up to 75%
**Key Takeaway:** The same mixed-use property could be treated very differently by different lenders, resulting in significantly different loan amounts, rates, and terms. This is precisely why using a broker with experience across both commercial and residential lending markets is essential for mixed-use property.
How Lenders Assess Mixed-Use Property
The Commercial/Residential Split
The proportion of commercial to residential use is the starting point for assessment. Lenders typically determine this by:
- Floor area: What percentage of the total floor area is commercial versus residential?
- Value: What proportion of the total value is attributable to each element?
- Income: What proportion of total rental income comes from each element?
Most semi-commercial specialist lenders work best where the split is roughly 50/50, or where the commercial element does not exceed 50-60% of the total.
Valuation Approach
Mixed-use property valuations are more complex than single-use valuations. The surveyor typically:
- Values the commercial element based on rental income and commercial comparable evidence
- Values the residential element based on residential comparable evidence
- Aggregates the values, sometimes applying a discount for the mixed nature of the investment
- May also provide an "alternative use" value (what the building would be worth if entirely residential, subject to planning)
Income Assessment
For investment purchases, lenders assess the combined income from all units:
- Commercial rents assessed against market evidence
- Residential rents assessed against local rental comparables
- Void allowances may differ for each element
- Stress testing applied to the combined income
Lenders may apply different ICR requirements to each element. For example, requiring 1.40x ICR on the commercial income and 1.25x on the residential income.
Regulatory Status
A property containing residential tenants that are regulated under the Residential Tenancies legislation may trigger additional requirements:
- Compliance with the Homes (Fitness for Human Habitation) Act
- HMO licensing if multiple residential occupants share facilities
- Gas and electrical safety certificates
- Deposit protection for residential tenancies
LTV and Rate Expectations
Mixed-use property finance typically sits between pure commercial and pure residential terms:
Predominantly Residential (Commercial < 30%)
- LTV: Up to 75-80%
- Rates: From 5% to 7%
- Assessment: Primarily residential, with commercial element noted
- Lender type: Buy-to-let or specialist residential
Balanced Mixed-Use (30-60% Commercial)
- LTV: Up to 75%
- Rates: From 5.5% to 8%
- Assessment: Semi-commercial specialist product
- Lender type: Semi-commercial specialist or commercial lender
Predominantly Commercial (Commercial > 60%)
- LTV: Up to 70-75%
- Rates: From 6% to 9%
- Assessment: Treated as commercial with residential noted
- Lender type: Commercial lender
Advantages of Mixed-Use Property Investment
Mixed-use property offers several investment advantages that appeal to both investors and lenders:
Income Diversification
Combining commercial and residential income provides natural diversification. If the commercial unit is vacant, the residential element still generates income (and vice versa). This resilience is valued by lenders.
Different Market Cycles
Commercial and residential property markets do not always move in tandem. A mixed-use building can benefit from whichever sector is performing better at any given time.
Yield Enhancement
Commercial elements often generate higher yields than residential equivalents. A shop with a flat above may produce a blended yield that exceeds what either element would achieve alone.
Conversion Optionality
Mixed-use properties sometimes have potential for conversion to entirely residential use, which can unlock significant value in areas where residential values exceed commercial. This provides an inherent "Plan B" that lenders appreciate.
Tax Efficiency
Mixed-use property benefits from favourable stamp duty treatment. SDLT is calculated using commercial rates (which can be lower than residential rates with surcharges for additional dwellings). Additionally, mortgage interest remains fully deductible for the commercial element, unlike the restricted relief for residential buy-to-let.
**Key Takeaway:** Mixed-use property offers a compelling combination of yield, diversification, and tax efficiency. These advantages, combined with relatively accessible entry prices, make semi-commercial a popular choice for investors building commercial property portfolios.
Common Challenges and How to Overcome Them
Challenge 1: Finding the Right Lender
**The problem:** Not all lenders handle mixed-use property, and those that do have widely varying criteria and pricing.
**The solution:** Use a broker with specific semi-commercial experience. At Commercial Mortgages Broker, we work with lenders across the commercial, residential, and semi-commercial markets, ensuring we can identify the best product for each property's specific split and characteristics.
Challenge 2: Valuation Complexity
**The problem:** Mixed-use valuations are inherently more complex, and down-valuations are more common than for single-use properties.
**The solution:** Commission a RICS valuation from a surveyor experienced in mixed-use property. Provide comprehensive comparable evidence for both elements. If possible, have the commercial and residential elements separately assessed.
Challenge 3: Lease and Tenancy Management
**The problem:** Managing both commercial leases and residential tenancies requires understanding two different regulatory frameworks.
**The solution:** Engage a managing agent experienced in mixed-use property, or ensure you understand both commercial lease obligations and residential tenancy regulations. Ensure all residential tenancies comply with current legislation.
Challenge 4: Insurance
**The problem:** Insuring mixed-use property can be more complex than single-use, as the policy must cover both commercial and residential risks.
**The solution:** Use a commercial property insurance broker who specialises in mixed-use buildings. Ensure the policy covers all elements and complies with any lender requirements.
Using Bridging Finance for Mixed-Use Property
If you need to move quickly on a mixed-use property purchase, or the property requires works before it meets long-term lending criteria, [bridging finance](/services/commercial-bridging) can provide a short-term solution:
- Purchase quickly at auction or to beat a competing bid
- Fund refurbishment of either commercial or residential elements
- Stabilise the property (fill voids, improve leases) before refinancing to a long-term mortgage
- Convert the property to improve the commercial/residential split
Bridging lenders are generally comfortable with mixed-use property and can complete within 2-4 weeks.
Active Lenders in Mixed-Use Property Finance
Specialist semi-commercial lenders include:
- Kent Reliance: Well-known for semi-commercial products with competitive LTV
- Paragon: Dedicated mixed-use lending criteria
- Aldermore: Flexible approach to commercial/residential splits
- Hampshire Trust: Good appetite for smaller mixed-use investments
- Shawbrook: Handles complex mixed-use cases
- Allica Bank: Growing presence in semi-commercial lending
- Interbay: Specialist in semi-commercial buy-to-let
High street banks like **Lloyds** and **NatWest** also finance mixed-use property, typically treating them as commercial mortgages.
[Contact us](/contact) to discuss your mixed-use property financing requirements. Our team has extensive experience structuring finance for semi-commercial buildings of all types.
*Written by Matt Lenzie, Founder of Commercial Mortgages Broker. Ex-Lloyds Bank & Bank of Scotland.*