How an owner-occupied commercial mortgage can help you buy business premises

Renting your business premises might feel like throwing money down the drain when you’re paying someone else’s mortgage instead of building your own wealth.

But despite this, just 45% of UK commercial property is owner occupied. That means most businesses are still renting when they could be buying and building valuable assets.

With current commercial mortgage rates sitting between 3.5% and 6% for most businesses, and government schemes offering up to £2 million in backed funding, now could be the perfect time to stop paying rent and start building equity in your own business premises.

In this article, we’ll explain what an owner occupied commercial mortgage is, what it could cost, the pros and cons to consider, and more.

Key points:

• Owner-occupied commercial mortgages let you buy business premises with deposits from 25-30%

• Tax advantages include a 75% Capital Gains Tax exemption after two years and up to £1 million in Annual Investment Allowances

• Funding Options by Tide can help when optimisation of working capital isn’t enough, offering access to business finance up to £20 million

What is an owner-occupied commercial mortgage?

An owner-occupied commercial mortgage is a type of loan that helps you buy property for your own business to use. It’s like a regular house mortgage, but for your shop, office, warehouse, or factory.

The main difference from other types of commercial mortgages is that you’ll be using the property for your own business, rather than buying it to rent out to other businesses.

Let’s imagine you run a cafe and you’re currently paying £3,000 a month in rent. With an owner-occupied commercial mortgage, you could buy that same property and pay a similar amount each month towards owning it outright. After 15-20 years, you’d own a valuable business asset instead of having nothing to show for decades of rental payments.

A huge range of businesses could benefit from an owner occupied commercial mortgage. Manufacturers can buy warehouses and factories, retailers can buy their shop premises, professional services firms can own their offices, and even restaurants and cafes can buy their premises.

Most lenders will consider applications from individuals, partnerships, limited companies, and LLPs. And unlike investment mortgages where you need tenants to generate rental income, owner occupied mortgages are based on your business’s ability to afford the repayments from your trading profits.

How much could an owner-occupied commercial mortgage cost?

Commercial mortgage interest rates currently range from as little as 2.25% to 12% per year, but most businesses will pay somewhere between 3.5% and 6%. The exact rate you get will depend on your business’s financial strength, the property type, and how much deposit you can put down.

Speaking of deposits, you’ll typically need to put down between 25% and 30% of the property’s value upfront. So if you’re looking at a £400,000 property, you’d need around £100,000 to £120,000 as a deposit. The remaining amount becomes your mortgage.

Say you want to buy a £500,000 warehouse for your manufacturing business. With a 25% deposit (£125,000) and a 20-year mortgage at 4.5% interest, your monthly payments would be around £2,370. That’s similar to what many businesses pay in commercial rent, but you’re building equity instead of just covering someone else's costs.

On top of your deposit and repayments, you’ll also need to budget for arrangement fees (typically 0.75% to 2% of the loan amount), legal fees, valuation costs, and potentially stamp duty if the property costs over £150,000.

For our £500,000 example, you might pay an extra £15,000 to £25,000 in fees and costs on top of your deposit. It may sound like a lot, but these are one-off costs that help you secure a valuable long-term asset.

The application typically takes around six to 12 weeks. This might seem slow compared to getting a business loan, but it’s not really that unreasonable if you consider that you’re making a big investment in your company’s future.

Will I save money compared to renting?

It’s possible to save money using an owner occupied commercial mortgage instead of renting, especially over the long term. But let’s break down exactly how the numbers work.

When you rent, every penny disappears forever. When you have a mortgage, each payment builds equity in an asset that belongs to your business. And once your mortgage is paid off, you’ll have eliminated what was probably one of your biggest monthly expenses.

For example, if you’re currently paying £3,000 a month in rent, that’s £36,000 per year going straight out of your business with nothing to show for it. Over 20 years, you’ll have paid £720,000 and still be paying rent. With a mortgage on the same property, after 20 years, you'd own an asset that could be worth a lot more than you paid for it.

Commercial property prices are also forecast to increase by 19% between 2024 and 2034. While no one knows for sure, buying now could potentially protect you from future price rises if they do.

Here’s a rough example of how ‌costs might compare over time:

There are immediate benefits, too. Unlike rental agreements that have regular rent reviews (usually every 3-5 years), your mortgage payments can be fixed for longer periods, which can help you budget more effectively.

If your business needs change, you have options. You could either extend the property, modify it to suit your operations better, or even use it as security for additional working capital finance to grow your business.

What tax benefits can I claim?

The tax advantages of owning commercial property can be significant, yet many commercial property owners miss out on claiming them properly.

Here are the main tax reliefs you can claim on commercial property in 2025/26:

• Annual Investment Allowance (AIA): 100% tax relief on up to £1 million of qualifying plant and machinery per year

• Capital Allowances: Tax relief on eligible fixtures, fittings, and integral features within the property

• Structures and Buildings Allowance (SBA): 3% per year deduction on construction or building improvement costs

• Mortgage Interest Relief: Full interest deduction for commercial properties held in companies

• Maintenance and repairs: Legitimate repairs and upkeep costs are fully tax-deductible against income

• Business Asset Disposal Relief (BADR): A reduced Capital Gains Tax rate of 14% (10% in previous years) on qualifying commercial property sales, subject to a lifetime gain limit of £1 million and ownership/use conditions over at least two years

What are the benefits and risks of owner-occupied commercial mortgages?

Like any major business decision, buying your own premises has both advantages and risks you’ll need to consider.

Here are ‌some of the benefits:

• Building equity: Every mortgage payment increases your ownership stake in a valuable business asset

• Cost control: Fixed mortgage payments protect you from rent increases and give you long-term budget stability

• Property control: You can usually modify, extend, or adapt the property to suit your business needs

• Tax advantages: This can include capital gains exemptions, capital allowances, and mortgage interest relief

• Asset security: The property can be used as collateral for future business borrowing

And here are some risks to consider:

• Reduced flexibility: It may be harder to relocate your business quickly if circumstances change or opportunities arise elsewhere

• Maintenance responsibility: You’ll be responsible for all repairs, maintenance, and property-related costs

• Market risk: Property values can go down as well as up, potentially leaving you with negative equity

• Cash flow impact: Higher upfront costs and ongoing responsibilities can affect your working capital

• Interest rate exposure: If you choose a variable-rate mortgage, your costs could increase without notice if interest rates rise

Do I qualify for an owner-occupied commercial mortgage?

Lending criteria for owner occupied commercial mortgages are fairly accessible for established businesses. Most major lenders have similar requirements, but each has slightly different risk appetites.

Here’s what most lenders will want to see:

• Trading history: Usually at least two years of trading history (may not need to be profitable every year, but should be consistent and sustainable)

• Financial health: A Debt Service Coverage Ratio (cash flow vs. debt obligations) of around 150% or more, although exact requirements will vary by lender

• Credit record: Clean credit history is preferred, but some providers will consider adverse credit

• Age: Usually between 18 and up to 80-85 years old at the end of the mortgage term

• Deposit: 20-40% of the property value readily available

The structure of your business shouldn’t matter too much. Lenders will usually consider applications from sole traders, partnerships, limited companies, and LLPs. But some lenders have preferences – for example, some prefer lending to limited companies for larger amounts.

Businesses in certain industries may find it easier to get approved. Healthcare businesses (e.g. dental practices and medical centres) are often viewed as lower risk due to their typically steady income streams. Professional services firms, established manufacturers, and profitable retail businesses also tend to be considered lower risk.

The property itself also matters. Lenders prefer properties in good locations with strong rental demand, just in case they ever need to recover their money. For this reason, regular commercial properties like offices, shops, and warehouses can often be straightforward. If you have a more unusual property, you might need a specialist lender.

Lenders may accept applications from newer businesses that have strong business plans, but the terms will likely be less favourable than for more established businesses (e.g. higher deposit, higher rates, or lower borrowing limits).

If you’re not sure whether you’d qualify, it's worth speaking to a commercial finance broker like Funding Options by Tide. They can help assess your situation and match you with lenders who are most likely to say yes to your specific circumstances.

Is there government help available?

Yes, there is support available, and it can be more substantial than many business owners realise.

Growth Guarantee Scheme

The main scheme is the Growth Guarantee Scheme, which launched in July 2024 and offers government-backed lending support for businesses including those buying their own premises.

The Growth Guarantee Scheme provides loans up to £2 million per business group (with different caps for borrowers in Northern Ireland and some sectors) and gives lenders a 70% government guarantee on the outstanding balance of the loan.

The scheme covers UK-based businesses with up to £45 million annual turnover and is available from major lenders, including NatWest, Santander, HSBC, Bank of Scotland, and Lloyds. And because of the government guarantee, lenders may be more willing to offer finance to businesses that might otherwise find it difficult to secure a commercial mortgage.

Other schemes

Beyond the national scheme, there are some regional programmes to consider:

• The Greater Manchester Combined Authority Evergreen Funds provide £3-15 million loans for commercial property regeneration in the North West

• The Development Bank of Wales and the Transforming Towns Programme help businesses in Wales revitalise and improve commercial properties, particularly in town centres, by providing loans and grants for refurbishments, energy efficiency works, and bringing vacant buildings back into business use

Across the UK, many local authorities offer grant schemes for commercial property projects, usually focused on regeneration and bringing vacant buildings back into use. The grant amounts vary (from as little as £1,000 for small improvements to over £1 million for major regeneration) depending on the local authority and the project focus.

Bear in mind that these schemes change regularly, and many have limited or time-bound funding that’s often allocated on a first-come, first-served basis. So if you’re considering buying business premises, check what’s currently available in your area as soon as possible.

Are there alternatives to owner-occupied commercial mortgages?

If a traditional commercial mortgage isn’t right for your situation, you may want to consider several alternatives. Each will have different pros and cons depending on your specific needs and circumstances.

• Bridging loans: These can be suitable for buying property quickly, buying at auction, or when you need to move fast. They’re short-term loans, typically completed in 2-4 weeks. But they usually need to be repaid within 12-18 months, and their interest rates are often higher than for standard commercial mortgages

• Property development finance: If you’re planning to renovate, extend, or convert a property, development finance can release the funds you need in stages as the work progresses

• Semi-commercial mortgages: If you’re looking at mixed-use properties (like a shop with a flat above), these specialist products may be more suitable than a standard commercial mortgage

Sometimes the right approach is a combination. For example, you could use bridging finance to buy a property quickly. Then, you could refinance onto a regular commercial mortgage once you finish any repairs and the property is making money or being used by your business.

How do I apply for an owner-occupied commercial mortgage?

Getting approved for an owner occupied commercial mortgage is largely about preparation and presentation. Lenders want to see that you’re a safe bet, and the more evidence you can provide, the better your chances could be.

Here's what you’ll usually need to prepare:

• Financial documents: At least 2-3 years of business accounts, plus recent management accounts showing current performance

• Business plan: A clear explanation of how the property fits your business strategy and how you’ll afford the repayments

• Property details: Professional valuation, survey results, and clear information about intended use

• Personal information: Proof of identity, address, and personal financial position for any guarantors

You’ll usually start with an initial assessment where the lender checks your eligibility. If that looks positive, they’ll request full documentation and arrange a property valuation. If that goes well, they’ll make a formal offer and outline their terms and conditions.

Most applications take around 6-12 weeks, but this can vary depending on the complexity of your situation and how quickly you provide the requested information.

One decision you’ll need to make early on is whether to apply directly to lenders or use a broker. Going direct gives you more control and potentially saves on broker fees. But brokers have access to specialist lenders and may be able to get better terms, especially if your situation isn’t straightforward.

Some business owners find that working with an experienced commercial finance broker saves them time and money. With challenger and specialist banks now providing 60% of SME lending, having expert guidance to navigate the changing lender marketplace can be very helpful.

Find business finance with Funding Options by Tide

Whether you’re looking for a standard business loan, a short-term business loan, or something a little more specialist, like auction finance for property developers, we’re one of the leading names in business finance in the UK, having helped facilitate over £1 billion in finance to more than 20,000 customers. 

Checking if you’re eligible is free, only takes a few minutes, and while a full application would impact your personal or business credit score, checking eligibility won’t. Just submit your details via the link below to find out if you could be eligible to borrow up to £20 million.

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FAQs

Can I get 100% financing?

Most lenders require deposits of 20-40%, but some specialist sectors like medical practices may access higher loan-to-value ratios up to 80% or occasionally even 100% with additional security (eg equity from another property or strong business assets). The exact amount of financing you’ll get will depend on your business sector, financial strength, and the type of property.

What if my business is less than two years old?

Most mainstream lenders will want to see 2-3 years of trading history, but some specialist lenders will consider newer businesses with strong projections and experienced management. Alternatively, bridging finance might be an option to consider while you build up your trading record.

How long does the application process take?

Typically 6-12 weeks from initial application to completion, although this will vary based on the complexity of your situation and how quickly you provide the necessary documentation. Having all the paperwork ready in advance can speed up the process.

What preparation is needed before applying?

You’ll need to prepare 2-3 years of business accounts, a clear business plan explaining how the property fits your strategy. Make sure your credit record is clean, and have the deposit funds readily available. The more prepared you are, the smoother the application process is likely to be.

Can I use the property as security for other loans?

Usually, through second charge mortgages or refinancing arrangements, but you’ll need approval from your existing lender first. Many businesses successfully use their commercial property as security for additional working capital or expansion funding.

What happens if I want to relocate my business?

You have several options:

• Sell the property (potentially benefiting from capital gains tax exemptions)

• Let it out to generate rental income

• Use it as security for borrowing to fund your relocation

Unlike renting, you’re not trapped by lease terms.

Should I buy the property personally or through my company?

This will depend on your tax situation, but company ownership can often provide better tax benefits such as lower corporation tax rates and more flexible capital gains treatment. It’s worth discussing this with an accountant before applying.

What if my business needs change and I need a different space?

As the property owner, you should have complete flexibility to modify, extend, or subdivide your property (subject to planning permission). You can also sell and buy more suitable premises, potentially using any capital gains to fund the move.

How do interest rates compare to other business borrowing?

Commercial mortgage rates (around 3.5-6% but possibly higher depending on lender and deal) are generally lower than unsecured business loans because the property provides security to the lender. This makes them one of the most cost-effective ways to finance big purchases.

What ongoing costs should I budget for as a property owner?

Budget for building insurance, maintenance and repairs, business rates, and potentially service charges. Unlike renting, you’re responsible for all the building-related expenses, but you also have control over how much you spend and which contractors you use.

Can I remortgage or release equity later?

Commercial remortgaging can allow you to release equity for business expansion, refinance to a more competitive deal, or consolidate other debts. Many successful businesses use their property equity strategically to fund growth.

What sectors do lenders prefer for owner occupied mortgages?

Healthcare businesses, professional services, and established retail operations are often viewed favourably due to typically stable income. Manufacturing businesses with long-term contracts and profitable service businesses can also get competitive terms.

Please note that the information above is not intended to be financial advice. You should seek independent financial advice before making any decisions about your financial future.

It’s important to remember that all loans and credit agreements come with risks. These risks include non-payment and late-payment of the agreed repayment plan, which could affect your business credit score and impact your ability to find future funding. Always read the terms and conditions of every loan or credit agreement before you proceed. Contact us for support if you ever face difficulties making your repayments.

Funding Options, now part of Tide, helps UK firms access business finance, working directly with businesses and their trusted advisors. Funding Options are a credit broker and do not provide loans directly. All finance and quotes are subject to status and income. Applicants must be aged 18 and over and terms and conditions apply. Guarantees and Indemnities may be required. Funding Options can introduce applicants to a number of providers based on the applicants' circumstances and creditworthiness. Funding Options will receive a commission or finder’s fee for effecting such finance introductions.