Changing a Residential Mortgage to Commercial

Although less common than converting a commercial property to residential use, there are circumstances whereby you may want to change the use of a residential property to commercial.

In this article we’ll explore some circumstances that may call for this change of use, how to change the mortgage accordingly, and what to consider if you’re planning this type of conversion.

Can you change a residential mortgage to commercial?

Yes, it’s perfectly possible to repurpose a residential property for commercial use, however, depending on the intended purpose, there are a number of steps you’ll need to take before you’re able to change the mortgage.

It’s, therefore, highly recommended that you seek expert advice to ensure you take all the right steps for your circumstances.

The purpose of the property will determine the type of mortgage you need to convert to, which could be an owner-occupier commercial mortgage, a semi-commercial mortgage, a commercial buy-to-let or a residential buy-to-let.

How to convert a residential property for commercial use

There are a number of reasons you might wish to change the use of a residential property to commercial, but the chances are, a residential property won’t be set up for commercial use, unless you plan to let it out to tenants.

Even where the use remains residential, there are minimum regulations to consider for rental property that you wouldn’t necessarily have considered as a homeowner, such as building, fire and health and safety regulations.

If you intend to use the property as some form of trading or other commercial use premises, considerable renovation works are likely to be necessary before you would be able to apply to change the use classification of the property, or the mortgage type.

Running a business from home and mixed use properties

To run a business from home you may not necessarily need to change the mortgage type.

Using your spare bedroom as an office, for example, is usually fine on a residential mortgage, although you should always check your mortgage lender’s terms and conditions first.

If you need to add space to house the commercial elements of a mixed-use property, for example, a dental treatment room, or a retail showroom/service room, but will maintain a residential element, you may need to switch to a semi-commercial mortgage.

The percentage of the property that’s considered an acceptable level of commercial use before a semi-commercial mortgage is required varies from one lender to the next, although 30% commercial and 70% residential is a typical crossover point.

Finance options

There are a number of finance options available, but these can vary quite considerably depending on the changes you intend to make.

For example, if you’re planning to change a residential dwelling to a residential buy-to-let, there may not be many structural changes required, and in this case, it’s usually possible to simply remortgage onto a residential buy-to-let mortgage.

If you plan to change your home into a mixed use property and need to add additional rooms, or carry out considerable renovations to the property, there are a couple of ways you could go about financing these changes.

Depending on the type of business you intend to run from home, there are some lenders who might consider a self-build mortgage for mixed use properties.

Certainly not all lenders will offer this option, however, so it’s important to speak to a broker with expertise if you’re planning this route.

You could also potentially use a bridging loan to make the necessary changes before refinancing to a semi-commercial mortgage once the conversion is complete.

If you intend to convert your residential property to a fully commercial space, such as a retail premises or offices, it’s likely that you’ll be able to refinance onto a commercial mortgage and either release some of the equity from your home or increase your borrowing in order to make the necessary renovations.

Planning Permission requirements

You may or may not need to apply for planning permission depending on what your intended commercial use will be, and how many physical changes, if any, need to be made to the property.

Planning permission is usually necessary when you change the use class, however, so if your change is for anything non-residential, it’s highly likely you’ll need planning permission.

You’ll also have to apply to the local authority for both prior approval and change of use class, whether planning permission is required or not.

Changing the use class

In order to use the property for its intended purpose, and to secure the right type of finance, you’ll first need to ensure that you change the use classification of the property.

Even if you stay within the same building class, it’s likely that the sub-category will need to be changed, so always inform the relevant authorities of any planned changes.

For example, changing a single residential dwelling into a house of multiple occupancy (HMO) by renting out the rooms individually would require a change of class from C3a to a C4.

The table below shows the use classes used for UK properties:

UK Building Classes	Building Purpose
B Class	Industrial processing premises or warehouses and open air storage facilities
C Class	Residential properties of all types, i.e house, HMO, hotel, care home, hospital etc
E Class	Professional services premises, including restaurants, gyms and offices etc
F Class	Non residential leaning facilities, such as schools and colleges, and community use premises, such as shops, recreational halls and Libraries
Sui Generis	Buildings generally fall into this class when they fall outside the defined limits of any other use class, but may include: theatres, fuel stations and casinos

What criteria you’ll need to meet

The criteria to meet will depend on the finance needed to make your conversion a reality.

If you plan to change to a commercial mortgage, however, the basic criteria are laid out below:

Lender availability

The lenders available to you will depend on your personal circumstances, your intended use of the property, and the route you plan to take in order to convert the property into a usable commercial building.

A broker who specialises in both residential and commercial mortgages will be best placed to advise you on which financial path is best for your journey.

When it comes to changing the use of residential property to commercial, the most popular reason is to convert the property into a residential buy-to-let.

How your interest rate will change

If you’re changing from a residential mortgage to any form of commercial mortgage, you’re likely to see a rise in interest rates, as all commercial finance is generally more expensive than home loans.

The type of commercial mortgage needed will also impact how much of a change in rates is applicable.

At the time of writing, the following minimum rates applied:

• Residential buy to let – 1.74%*
• Semi-commercial mortgage – 2.5%*
• Commercial mortgage – Rates are not set for this type of lending, and therefore will be determined case by case and  based on the level of risk involved in lending. A typical rate is between 3.5%-6%*
• Bridging loan – 0.42%* (Per month – as bridging loans are a short term form of finance, the interest is charged on a monthly, rather than annual basis)

*Rates can change at any time, so please check with your broker beforehand

Work out your commercial mortgage payments

Bearing in mind how your interest rates will change, as outlined above, you can use our commercial mortgage calculator below as a guide to how your repayments could work out at if you decide to switch to this type of mortgage.

Changing to a residential buy-to-let

A residential buy-to-let mortgage is a type of commercial mortgage product, as the property will be used to earn profit.

It’s not always necessary to change your mortgage in order to let out your residential home in the short term, as most lenders will provide a consent to let for a year or so, if you’re working abroad, for example.

If you’re planning to rent out your home in the long term, however, you’ll likely need to change your residential mortgage to a buy to let mortgage.

It’s possible to do this with your own lender in some cases, and there are high street lenders such as Natwest and HSBC offering buy-to-let products, although not all providers do.

Another option for those looking to rent out their home is a let to buy mortgage, which would allow you to change your existing mortgage into a buy-to-let, whilst taking out another residential mortgage simultaneously, to buy another residential home.

If you’re planning to let out the property on a commercial basis, for example, as an office block, once you’ve made the required conversions to a residential property, you’ll need to use a commercial buy to let (otherwise known as a commercial investment mortgage) as a residential buy-to-let mortgage is only suitable for residential purposes.

Get matched with the a broker experienced in commercial mortgages

Whatever your intention, converting the use of a property from residential to commercial is not usually as straightforward as simply remortgaging to a suitable product.

Expert advice is highly recommended when making any complex changes to a mortgage and/or the property use, to avoid making potentially expensive mistakes.

We offer a free broker matching service, and the expert brokers we work with are experienced in both commercial and residential mortgages, as well as bridging finance, so no matter what your needs, they’ll be able to provide all the guidance you need to successfully convert your residential home into a profitable investment.

To get paired with the most suitable broker for your circumstances, simply call us on 0808 189 0463 or complete the following enquiry form.

Your initial consultation will always be free, and we only work with brokers offering a success-only fee structure.