Whether you’re buying premises for your business or investing in commercial property, a commercial mortgage could be the key. Unlike residential mortgages, these loans are tailored for properties that generate income or house a business.
- What is a Commercial Mortgage? 🏦
A commercial mortgage is a loan secured against non-residential property such as:
- Offices
- Retail shops
- Warehouses
- Factories
- Mixed-use (commercial + residential units)
They are usually long-term (up to 25 years) and can be either repayment or interest-only, depending on the lender.
- Types of Commercial Mortgages
- Owner-Occupied
- For businesses buying premises to trade from.
- Example: A dental practice buying its surgery building.
- Commercial Investment
- For investors purchasing commercial property to rent out.
- Example: A landlord buying a shop with flats above.
- How Much Can You Borrow?
- Loan-to-value (LTV) is usually 60–75%.
- Affordability is based on business profits (for owner-occupiers) or rental income (for investors).
- Rates depend on risk, credit history, and property type.
- Key Costs Involved
- Arrangement and valuation fees.
- Legal costs (can be higher than residential and typically the lenders legal costs are paid by you as the applicant).
- Potential VAT on property purchase.
- Stamp Duty Land Tax.
- Advantages
- Allows businesses to build equity rather than pay rent.
- Long-term stability (no landlord increasing rent).
- Opportunity for investors to diversify beyond residential property.
- Risks
- Larger deposits required (often 25–40%).
- Complex underwriting compared to residential mortgages.
- If business income falls, repayments can be harder to maintain.
- Best Practices
- Have 3 years of accounts ready (for owner-occupiers).
- Ensure rental yields stack up (for investors).
- Seek advice from a broker with specialist lender access.
- Always plan for voids or business downturns.
Key Takeaway
Commercial mortgages open the door to owning or investing in business premises. While more complex than residential lending, with the right preparation and advice they can be a powerful tool for business growth and portfolio diversification.
