Buying a mixed-use property presents unique opportunities for property investors and business owners.
Properties combining commercial and residential elements can offer reduced risk and multiple income streams.
But conventional mortgages aren’t always quick enough for the initial purchase. That’s where bridging loans come in.
If you’re considering a mixed-use property purchase, understanding how bridging finance works could make the difference between securing your ideal property or missing out.
Understanding Mixed-Use Properties
A mixed-use property combines both residential and commercial space in one building.
The most common example you’ll see on UK high streets is a shop with one or more flats above it. But mixed-use properties come in many forms – from small cafes with owner’s accommodation to large developments mixing retail, office space, and apartments.
In UK towns and cities, you’ll find several popular mixed-use layouts.
Besides the classic shop and flat combination, there are office buildings with ground floor retail, pubs with living quarters, and converted warehouses splitting commercial and residential space.
Manchester’s Northern Quarter is a good example – a thriving area where Victorian buildings often house independent shops at street level with two or three renovated flats above.
Mixed-use properties can offer compelling investment advantages. You’ll benefit from two separate income streams – rent from both commercial and residential tenants.
This spread can help protect your income if one part of the property becomes vacant. Plus, these properties often sit in prime locations where both businesses and residents want to be.
Here’s something many investors don’t realise – mixed-use properties can offer tax benefits too. When it comes to Stamp Duty Land Tax (SDLT), these properties often qualify for lower commercial rates rather than residential rates.
However, owning a mixed-use property also means dealing with different types of tenants and their specific needs. You’ll need to understand both commercial and residential letting rules, maintenance requirements, and property management. A shop tenant might need different hours of access than residential tenants, or your commercial space might require specific insurance coverage.
How Bridging Loans Work for Mixed-Use Properties
Bridging loans are short-term loans secured against property, lending you money for a few months up to a few years.
For mixed-use properties, they work slightly differently from standard property loans, so let’s look at how they function.
The Basic Structure
When you use a bridging loan to buy a mixed-use property, you’ll borrow against the property’s value for a set period.
Let’s say you’re buying a £500,000 property at auction – a corner shop with two flats above in Leeds. You might borrow £375,000 through a bridging loan, putting down a 25% deposit. The loan runs for 12 months, giving you time to either improve the property and sell it or arrange long-term finance.
First and Second Charge Loans
You’ll come across two main types of bridging finance. A first charge loan is like a primary mortgage – it’s the first loan secured against the property. If you already have a mortgage or loan on the property, you might look at a second charge bridging loan. This sits behind your existing loan but can help you access additional funds.
Read more: First, Second & Specialist Charges in Bridging Finance
Duration and Terms
Bridging loans tend to run for 3 to 18 months. Some lenders offer up to 24 months if you need more time. You can often choose how to handle the interest payments. You might pay monthly, roll up the interest to pay at the end, or have it deducted from the loan at the start.
Read more: How Do Bridging Loan Interest Options Work?
Security and Requirements
Lenders will want to see:
- A clear value for both the commercial and residential parts
- Your plan for paying back the loan (called your exit strategy)
- Details of any existing tenants
- The condition of both parts of the property
For example, if you’re buying that Leeds property at auction, you’d need to show:
- The property valuation
- Your plans to refinance onto a commercial mortgage
- Any existing shop lease details
- Your deposit funds
Remember, while bridging loans can help you buy quickly and simply, they’re just one part of your property finance journey. Most people use them as a stepping stone to longer-term funding, especially with mixed-use properties where setting up the right long-term finance takes time.
Related: What Are Residential Bridging Loans?
Let’s talk bridging loans!
Why People Use Bridging Loans to Buy Mixed-Use Properties
Many buyers turn to bridging finance when purchasing mixed-use properties – there are several good reasons for this.
Here’s what makes them such a useful option.
Speed When It Matters
Let’s say you’ve found a shop with two flats above in a prime city location. Other buyers are interested, and the seller wants to move quickly. A commercial mortgage might take 6-8 weeks to arrange. With a bridging loan, you could complete in 2-3 weeks, giving you an edge over other buyers.
Auction Purchases
Mixed-use properties often come up at auction. A client recently bought a former pub with residential space above in Luton at auction. They needed to pay within 28 days – standard for auction purchases. An auction bridging loan meant they could meet this deadline comfortably.
When Properties Need Work
Many mixed-use properties need updating before a standard lender will consider them. One property investor bought a run-down shop with flats. The residential space needed new bathrooms and kitchens, while the shop needed a complete refit. Mortgage lenders won’t consider lending until the work was done, but a refurbishment bridging loan allowed them to buy and renovate.
Chain Breaks
Sometimes you might need to buy before you can sell. A business owner wanted to buy new premises – a shop with a flat above – but hadn’t yet sold their existing property. A bridging loan helped them secure the new property while they sold their old one.
Related: How a chain break bridging loan could help you to move house
Planning Permission Changes
If you’re buying a property and planning to change its use – perhaps converting some commercial space to residential – you might need a bridging loan. One buyer in Camberwell used bridging finance to buy a large shop unit, giving them time to get planning permission to convert the upper floors into flats.
Read more: Financing Your Commercial to Residential Conversion
Buy Now, Refinance Later
Many buyers plan to refinance onto a long-term commercial mortgage but need time to get everything in place. For example, you might want to buy a mixed-use property and find tenants before applying for a long-term mortgage. A bridging loan gives you this flexibility.
Read more: What can a bridging loan be used for?
Who Uses Mixed-Use Property Bridging Finance?
Let’s look at who might benefit from bridging finance for mixed-use properties through real examples – you might spot yourself in one of these situations.
Property Investors Looking to Expand
If you’re already investing in residential or commercial property, mixed-use properties could be your next step. You might spot a Victorian building with a retail unit below and two flats above, all needing renovation. A bridging loan could help you buy and refurbish the property before letting both parts out.
Business Owners Seeking Their Own Premises
Many business owners use bridging loans to initially buy their trading premises. Imagine you run a successful café and want to buy your own building. You’ve found the perfect spot – a street-level shop with a flat above that could provide rental income or owner’s accommodation. A bridging loan could help you quickly secure the property while you arrange a long-term commercial mortgage.
Related: How Self-Employed Borrowers Can Access Bridging Finance
Commercial Landlords Diversifying Their Portfolio
As a commercial landlord, you might want to spread your risk across different property types. A bridging loan could help you add mixed-use properties to your portfolio. For instance, one of our clients bought a row of three shops with four flats above in Birmingham. They used a bridging loan to complete the purchase quickly while keeping their existing properties.
Property Developers Adding Value
If you’re a developer, you might see potential in converting or upgrading mixed-use buildings. Perhaps you’ve found a former pub with unused upper floors. A bridging loan could fund both the purchase and conversion into a shop with several flats above, letting you maximise the property’s value.
Read more: Can Bridging Loans Be Used for Property Development?
Real-Life Example
One of our recent cases involved a business owner in Streatham. She’d been renting a shop for her bookstore for years when the whole building came up for sale. Using a £525,000 bridging loan, she bought the property, which included her shop and two flats above. The rental income from the flats now helps cover her commercial mortgage payments.
You’ll notice these buyers share common ground – they need quick access to funds and have a clear plan for the property. But you don’t need to fit exactly into these categories.
What matters is having a solid strategy for using and repaying the bridging loan.
Key Requirements for Mixed-Use Bridging Loans
Before you apply for a bridging loan, you’ll need to understand what lenders look for. Let’s break down the main requirements using real examples from the UK property market.
Property Valuation
The way lenders value mixed-use properties differs from standard residential valuations. They’ll assess both the commercial and residential elements separately. For example, a building in Battersea with a ground floor shop and two flats above would need valuations on the shop’s rental potential as well as the flats’ market value.
The Commercial-Residential Split
Lenders want to know the exact split between commercial and residential space. This affects which rules apply to your loan. If more than 40% of the property is commercial – like a large shop with a small flat above – you’ll need a commercial bridging loan. With more residential space, different lending rules might apply.
Your Exit Strategy
You’ll need a clear plan for paying back the loan. This could be:
- Selling the property after renovation
- Moving to a commercial mortgage
- Using funds from another property sale
For instance, if you’re buying a shop with flats in Bristol for £600,000, your exit strategy might be refinancing to a mixed-use mortgage once you’ve found tenants for both parts.
Read more: How Do You Pay Back a Short-Term Bridging Loan?
Security and Assets
Lenders will look at:
- The property’s location and condition
- Any existing tenants and leases
- Your experience with similar properties
- Additional assets you can offer as security
A Real Example
One of our clients bought a former restaurant with three flats above in West London. The split was 35% commercial, 65% residential. The property needed refurbishment, but its prime location made it good security. The client’s exit strategy involved renovating all units and refinancing once tenants were in place.
What You’ll Need to Show
When applying, prepare to provide:
- Proof of your deposit
- A detailed schedule of works if renovating
- Current or projected rental figures
- Your plans for managing the property
Remember, each lender views applications differently. Some focus more on the property’s potential, while others pay more attention to your experience. That’s why getting advice early in the process can help you find the right match for your situation.
Exit Strategy Options
Bridging loans are only temporary, so you’ll need to explain to the lender what your exit plan is. Your exit strategy is how you’ll pay back your bridging loan, and it needs careful planning.
Let’s look at the main options that work well for mixed-use properties and what each involves.
Refinancing to a Long-term Mortgage
If you are keeping the property you will need to refinance the bridging loan over to a longer-term mortgage.
You might start talking to commercial mortgage lenders even before taking out your bridging loan. For example, if you’ve bought a shop with two flats above in York, you could arrange a mixed-use investment mortgage to start once you’ve found tenants for all units.
Selling After Adding Value
Some investors buy mixed-use properties to improve and sell them on.
You might spot a run-down building with a shop and maisonette that needs updating. After renovation, you could sell it to another investor or split the titles and sell the units separately. One investor we worked with bought a former pub with flats in East Ham, renovated everything, and sold it within nine months for a healthy profit.
Completing a Development Project
If you’re converting or extending a mixed-use property, your exit might come from finishing the work. Perhaps you’re turning unused space above shops into new flats. Once building work finishes and you have the completion certificates, you can either sell or refinance the enhanced property.
Read more: Can Bridging Loans Be Used for Property Development?
Alternative Exit Routes
Other ways to repay your bridging loan might include:
- Using money from selling another property
- Putting in place a pre-agreed sale
- Using business profits or other income
- Combining several smaller exit strategies
Planning Your Exit
Your exit strategy needs to be well thought out, realistic and well-timed.
Remember to build in some flexibility. If you’re planning to refinance, start the process early – commercial mortgages can take longer to arrange than residential ones. And always have a backup plan. If property prices dip or renovations take longer than expected, you’ll need other options.
Common Challenges and Solutions
When buying mixed-use property with bridging finance, you’ll face unique challenges. Let’s look at real problems buyers face and how to solve them.
Getting an Accurate Valuation
Mixed-use properties can be harder to value than standard ones.
A recent client bought a building in Sheffield with a convenience store below and flats above. The first valuer struggled to find similar properties nearby for comparison. The solution? We brought in a valuer who specialised in mixed-use properties and knew the local market well.
Planning Permission Puzzles
Changes to mixed-use properties often need different types of planning permission. You might need consent for both the commercial and residential parts. One property investor in Bayswater wanted to convert storage space above a shop into a flat. They solved this by speaking to the local planning department before making an offer, understanding exactly what permissions they’d need.
Managing Existing Tenants
Buying a property with sitting tenants brings extra considerations. For example, a building in Dulwich came with a long-term business tenant downstairs and monthly residential tenants upstairs. The buyer needed to understand both commercial and residential tenancy laws.
They handled this by:
- Reviewing all existing leases
- Meeting the tenants before purchase
- Understanding their rights and obligations
- Keeping everyone informed throughout the process
Legal Complications
Mixed-use properties often have more complex legal requirements than standard ones. You’ll need to check:
- Business rates for the commercial part
- Energy performance rules for both sections
- Fire safety regulations
- Insurance requirements
One buyer found their property needed different insurance policies for the shop and flats. They solved this by finding an insurer specialising in mixed-use properties, saving time and money.
Time Pressures
Bridging loans have fixed terms, so delays can cause problems. A Stratford buyer faced holdups getting planning permission for their conversion project. They managed this by:
- Building extra time into their loan term
- Starting the planning process early
- Having a backup exit strategy ready
- Keeping their lender updated on progress
How a Broker Helps
Getting bridging finance for mixed-use property isn’t like arranging a standard mortgage. A broker who knows this market can make a real difference to your purchase. Here’s how.
Finding the Right Lender
Many lenders who offer bridging loans don’t advertise to the public. An expert broker knows which ones suit different situations. When a client needed £450,000 to buy a former pub with retail space and three flats in Chiswick, we matched them with a lender who understood the property’s potential, even though it needed work.
Understanding Your Plans
Brokers look at your whole situation. One client came to us wanting to buy a shop with flats above. By understanding their long-term plans, we found a lender who could offer both the bridging loan and an investment commercial mortgage afterwards, making the exit strategy smoother.
Managing Your Application
Your broker handles the paperwork and keeps everything moving. They’ll:
- Check all documents before submission
- Answer lender queries quickly
- Chase up valuations and legal work
- Keep you updated throughout
Getting Better Terms
Recently, we helped a property investor buy a large mixed-use building in Marylebone. The first lender they approached directly offered less than they needed. We found them a better deal by showing the lender comparable local sales and explaining their renovation plans and experience in detail.
Next Steps
If you’re thinking about using a bridging loan for a mixed-use property, here’s what to do first.
Before You Apply
Get these basics ready:
- Details of the property you want to buy
- Your deposit amount and source
- Proof of ID and address
- Last three months’ bank statements
- Your exit strategy details
Planning Your Timeline
Work backwards from when you need to complete. Allow time for:
- Property valuation (1-2 weeks)
- Legal work (2-3 weeks)
- Lender assessment (1-2 weeks)
Getting Professional Help
You’ll need:
- A solicitor who knows mixed-use property
- A qualified valuer
- An accountant if you’re buying through a company
- A broker to arrange your finance
Remember, the better prepared you are, the smoother your purchase will be. Start gathering information early, even if you haven’t found a property yet. And don’t feel you need to understand everything before making enquiries – that’s what professionals are for.
FAQ
Lenders are used to moving quickly, most UK bridging loans complete within 2-4 weeks, depending on property complexity and documentation readiness.
Read more: How Quickly Can You Get a Bridging Loan?
Yes, bridging loans are well-suited for auction purchases where you need to complete within 28 days.
Read more: How to Finance an Auction Property
Common exit strategies include refinancing to a commercial mortgage, property sale, or development completion.
Yes, as lenders focus more on the property value and exit strategy than personal credit history.
Read more: Can you get a bridging loan with bad credit?
Yes, provided you have or can obtain the necessary planning permissions.
Our loans typically start from £150,000 with no standard upper limit, though most cap at £25 million.
Yes, bridging loans are available throughout the UK, though terms may vary by location.
Yes, subject to first charge lender consent and sufficient equity.
Read more: Second charge bridging loans
While not mandatory, a broker can access more lenders and often secure better terms, especially for complex cases.
