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What is a commercial mortgage?

A commercial mortgage is simply a mortgage that is used to buy or refinance a property or land that is going to generate an income either from the business that occupies it or from the rental income received. The same as a standard residential mortgage, the capital will be borrowed from a lender and secured against the property.

Commercial mortgages can also be used to:

  • Buy a business premises
  • Add to a buy-to-let portfolio
  • Expand an owner-occupied business
  • Raise capital on a business premises you already own


How does a commercial mortgage work?

A commercial mortgage works very similarly to a residential mortgage, there are just a few differences.

The terms on a commercial mortgage will typically last up to 25 years, and many lenders will allow you to borrow up to 70% of the property’s value, as it is expected that the business will make regular repayments on the capital, however there are some providers who could potentially offer up to 75% and on an interest basis.

The repayment terms of your mortgage will also vary depending on the type of commercial mortgage that you take out, which are detailed below.


Different types of commercial mortgages

Generally, there are two main types of commercial mortgages:

– Commercial investment mortgages – used to invest in a commercial property that you might be planning to let out, similar to a residential buy-to-let mortgage 

– Owner-occupier mortgages – used when the property being purchased will serve as trading premises for your business


What kind of businesses can be bought with a commercial mortgage?

A commercial mortgage can be taken out for a number of different types of businesses. Here are just a few examples:

– Office properties

– Semi-commercial properties, such as shops or offices with flats above

– Leisure properties, such as pubs, hotels, clubs, gyms, restaurants and casinos

– Retail commercial properties, such as retail parks and retail units

– Care properties, such as nursing homes, care homes and hospices

– Agricultural properties, such as farms, farmland and farm buildings

– Specialist professional properties, such as vets, doctor’s surgeries and private schools

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How do you get a mortgage on a commercial property?

The exact process of taking out a commercial mortgage may vary, but generally you will take the following steps:

  1. Work with a commercial mortgage broker who can pair you with the right commercial lender based on your individual circumstances
  2. Complete an Asset and Liability form to show your company’s net worth. This is calculated from subtracting your liabilities from the total value of your assets
  3. Once the lender is happy with the above, you will need to complete an application form
  4. You will need to provide more information to the lender about you/your business’ income and expenditure so they have a clear idea of affordability. You will need three years of financial records for this
  5. The underwriting process will take place
  6. A valuation will be carried out on the property you are purchasing, as well as your business
  7. Legal due diligence will be conducted by the solicitors

What you need to apply

When you’re getting ready to apply for a commercial mortgage, you will need to have the following documents and information ready:

– Personal and/or business bank statements for the previous three months

– Business trading accounts for the last three years

– Proof of identity

– Proof of address

– Lease and tenancy agreements for the business premises

– A detailed business plan – a must have for new or small businesses

– If you are making a limited company application, you will need personal guarantees from the company directors and debentures (a loan agreement in writing between a borrower and a lender that is registered at Companies House)

The exact requirements of the lender will vary depending on who you apply with, but being as prepared as possible will help ensure things go as smoothly as possible.

Costs to consider for a commercial mortgage

In addition to the monthly loan repayments and interest, you will also have to consider the following costs when taking out a commercial mortgage:

– Arrangement fees – These are usually due on completion of the sale, and typically charged at 1% – 2% of the loan amount up to £1 million

– Valuation fees – Valuation fees can vary from those charged for a residential property, often they can be higher. The exact amount will be determined on a case-by-case basis but it typically isn’t required to be paid up front, unlike a residential mortgage

– Broker fees – This will vary depending on the broker you use, and should only be paid on completion of your mortgage deal

– Legal fees – These are due on completion of your deal

What rates are available for commercial mortgages?

Lenders will usually base your interest rate on factors such as your income, your credit history, the property itself, and how reliable your income is set to be in the long term.

Typically commercial mortgage rates will be between 3% and 7.5% per annum, although this may also depend on whether your loan is a commercial investment mortgage or owner-occupied.

How to find the right deal for you

Getting any kind of mortgage can be stressful enough. Working with a specialist mortgage broker can help you get access to unique deals, as well as expert advice.

Commercial mortgages FAQs

How long does a commercial mortgage take to complete?

The time to complete an application from start to finish will vary depending on the borrower and the lender, and the individual circumstances surrounding your property and business. If your application is straightforward it can take a few weeks, although more complicated or high risk deals will take longer due to stricter checks.

Can I get a commercial mortgage if I’m a first time buyer?

Many lenders – particularly more traditional, high street lenders – will usually prefer to lend to someone with a proven track record of repayments. Others will require experience in the relevant industry, especially if you are dealing in a competitive sector such as a restaurant.

There are ways you can offset the risk by making personal guarantees or putting up additional collateral. It all depends on your individual circumstances, the mortgage you are taking out, and the lender you are working with. 

Can I get a commercial mortgage if I am self-employed?

Yes, it is possible to get a self-employed commercial mortgage, it simply depends on your individual circumstances and the lender you are borrowing from. Commercial mortgages tend to be more bespoke than residential mortgages, and can therefore be adapted and tailored to your circumstances.

What is a commercial offset mortgage?

An offset mortgage allows you to link a savings account to a mortgage in order to reduce the amount of interest payable on the loan. Although you won’t earn interest on your savings, you will pay the interest on the mortgage balance, minus the amount in your savings account. It is possible to secure a commercial offset mortgage if you require more flexibility.

What is a leasehold business mortgage?

It is possible to secure a leasehold commercial mortgage, however most lenders will only consider it if there is more than 70 years on the lease. If there isn’t, you may be asked to put forward additional security.

A personal approach to your mortgage

With a Mortgage Experience adviser on your team, you can sit back and relaxed, safe in the knowledge that we will be doing all the heavy lifting to find you a suitable self-employed mortgage. This gives you more time to do the other important things in life.

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