Commercial mortgages

If you’re looking to expand your business, or the cost of renting commercial premises has become too great, you may be considering investing in a property. Chances are, you’ll be looking to explore the range of commercial mortgage options on offer as a potential source of business finance and you’ll quickly discover that there’s a lot to be aware of.

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Commercial mortgages

Can you get a mortgage on a commercial property?

If you’re looking to expand your business, or the cost of renting commercial premises has become too great, you may be considering investing in a property. Chances are, you’ll be looking to explore the range of commercial mortgage options on offer as a potential source of business finance and you’ll quickly discover that there’s a lot to be aware of.

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With a commercial mortgage, you won’t have any sudden or unexpected rent increases, but obviously monthly repayments could go up if you have a variable rate deal. You may, however, be able to get a fixed rate mortgage for a period of time.

If the property increases in value, your business capital will go up and interest repayments on a commercial mortgage are tax deductible. You could possibly rent a portion of the premises to another company to help meet those monthly repayments, if your lender agrees to such an arrangement.

Repayment options are not unlike those found in the residential market, but there’s usually a slightly higher rate of interest, as commercial mortgages are perceived as higher-risk. It’s prudent to be able to offset this risk with as large a deposit as possible – at least 20%.

And as well as the standard valuation, arrangement, and legal fees, there can be additional costs associated with a commercial mortgage, so it’s worth seeking clarification from a lender or broker.

There’s a wealth of commercial mortgage providers out there, from the main high street banks to specialist lenders, so it’s worth searching the market to find one that ticks all your boxes — for the right price.

Commercial mortgage loan terms

 Typically, a loan term refers to the length of time it takes for a loan - whether it’s a commercial mortgage or another type of business finance - to be paid off in full through regular repayments. A commercial loan can typically last for a term of anywhere between three and 25 years.

However, ‘commercial loan terms’ can also refer to the details of the loan (such as the interest rate you must pay) when you sign. These are the conditions you have to adhere to and are also referred to as the loan’s Terms and Conditions (T&Cs). 

How to get a commercial mortgage loan

Your ability to get approved for a commercial mortgage is based on your business’ ability - in the eyes of the lender - to meet the loan’s repayment terms. You could be asked to produce a detailed business plan to demonstrate this. Also, it’s likely that a professional valuation will be required prior to securing the commercial mortgage. 

As detailed below, you can find a commercial mortgage through a high street bank, challenger bank or specialist lender. If you opt for a high street bank, you might have to move your business banking facilities there in order to get the most desirable terms. Some specialist lenders offer interest-only commercial mortgages, and may also offer a mortgage with a lower deposit (although in these cases interest rates tend to be higher). 

Commercial mortgage deposit

As is the case when you buy a home to live in, a commercial mortgage deposit is the money you pay to the lender that is a percentage of the property’s full cost. The lender provides you with a mortgage, enabling you to pay for the remainder of the property. Generally speaking, the more you pay in deposit the less you’ll have to repay on the mortgage. 

How much deposit do I need for a commercial mortgage?

The deposit amount for a commercial mortgage is usually between 25% and 40%. The figure will depend on a number of factors, including the level of risk your business poses to the lender. 

Owner-occupied commercial mortgages tend to have a 70% to 80% loan-to-value (LTV) ratio, which refers to the size of your mortgage in relation to the value of the commercial property you want to buy. The LTV for a commercial investment mortgage rarely exceeds 75%, unless the business is going to provide extra security.

Average commercial mortgage rate

Often, your commercial mortgage rates will depend on the level of risk and it can rise or fall depending on the evidence you provide when you apply.

When it comes to pricing an application, the lender will consider the loan size, LTV, your credit history and your business’ financials, as well as a range of other factors. Typically, the interest rate will tend to be lower if you intend to use the property as your business premises versus if you plan to let it out. 

When it comes to owner-occupied mortgages, rates can be anywhere from around 2.25% to 18%. Commercial investment mortgages on the other hand tend to have higher interest rates - they usually range between 3.5% and 6%.

Rates can be fixed or variable. It’s possible to get a fixed rate commercial mortgage for anywhere from two years to the length to the loan. Variable rate commercial mortgages track either the Bank of England Base Rate or LIBOR (London InterBank Offered Rate).

Types

Broadly speaking, commercial mortgages can be used for three purposes:

Buy-to-let (BTL)

A property which you want to purchase with the aim of letting it out to another party.

Looking for finance?

Let us help you find the best financial product in the market. We will guide you through the whole process and make sure you get the best deal.

See your Funding Options

Debt service coverage ratio (DSCR)

A measure of the cashflow you have available to pay your debt obligations — in other words, the ratio of your monthly repayment amount versus your overall cashflow position.

Looking for finance?

Let us help you find the best financial product in the market. We will guide you through the whole process and make sure you get the best deal.

See your Funding Options

Forced Sale Value (FSV)

The asking price you could achieve if you were forced to sell the property as soon as possible. Forced sale value is usually lower than Open Market Value because you wouldn’t have time to wait for the best offer to come in.

Looking for finance?

Let us help you find the best financial product in the market. We will guide you through the whole process and make sure you get the best deal.

See your Funding Options

Loan-to-value (LTV)

The ratio of the amount you want to borrow versus the total value of the property. For example, to purchase a property worth £1million at an LTV of 75% would mean your mortgage covered £750,000 and you’d have to put in £250,000 yourself.

LTV is an important metric in commercial property finance because it determines how much of a buffer the lender has between the potential sale price and the amount lent, and therefore has implications for the risk of the deal.

Looking for finance?

Let us help you find the best financial product in the market. We will guide you through the whole process and make sure you get the best deal.

See your Funding Options

Open Market Value (OMV)

The asking price you could achieve if you could afford to wait for a few months to sell the property. Open market value is usually higher than Forced Sale Value because you have time to wait for the best offer to come in.

Looking for finance?

Let us help you find the best financial product in the market. We will guide you through the whole process and make sure you get the best deal.

See your Funding Options

Planning Permission (PP)

Formal legal permission from a local authority for the development or alteration of property, commonly needed for most commercial and residential developments.

Looking for finance?

Let us help you find the best financial product in the market. We will guide you through the whole process and make sure you get the best deal.

See your Funding Options

Standard Variable Rate (SVR)

The variable interest rate of a mortgage which is determined by the mortgage lender’s discretion, rather than the Bank of England Base Rate.

Looking for finance?

Let us help you find the best financial product in the market. We will guide you through the whole process and make sure you get the best deal.

See your Funding Options

Lenders

There is a wide range of lenders offering commercial mortgages, each with their own pros and cons.

Buy-to-let (BTL)

A property which you want to purchase with the aim of letting it out to another party.

Looking for finance?

Let us help you find the best financial product in the market. We will guide you through the whole process and make sure you get the best deal.

See your Funding Options

Debt service coverage ratio (DSCR)

A measure of the cashflow you have available to pay your debt obligations — in other words, the ratio of your monthly repayment amount versus your overall cashflow position.

Looking for finance?

Let us help you find the best financial product in the market. We will guide you through the whole process and make sure you get the best deal.

See your Funding Options

Forced Sale Value (FSV)

The asking price you could achieve if you were forced to sell the property as soon as possible. Forced sale value is usually lower than Open Market Value because you wouldn’t have time to wait for the best offer to come in.

Looking for finance?

Let us help you find the best financial product in the market. We will guide you through the whole process and make sure you get the best deal.

See your Funding Options

Loan-to-value (LTV)

The ratio of the amount you want to borrow versus the total value of the property. For example, to purchase a property worth £1million at an LTV of 75% would mean your mortgage covered £750,000 and you’d have to put in £250,000 yourself.

LTV is an important metric in commercial property finance because it determines how much of a buffer the lender has between the potential sale price and the amount lent, and therefore has implications for the risk of the deal.

Looking for finance?

Let us help you find the best financial product in the market. We will guide you through the whole process and make sure you get the best deal.

See your Funding Options

Open Market Value (OMV)

The asking price you could achieve if you could afford to wait for a few months to sell the property. Open market value is usually higher than Forced Sale Value because you have time to wait for the best offer to come in.

Looking for finance?

Let us help you find the best financial product in the market. We will guide you through the whole process and make sure you get the best deal.

See your Funding Options

Planning Permission (PP)

Formal legal permission from a local authority for the development or alteration of property, commonly needed for most commercial and residential developments.

Looking for finance?

Let us help you find the best financial product in the market. We will guide you through the whole process and make sure you get the best deal.

See your Funding Options

Standard Variable Rate (SVR)

The variable interest rate of a mortgage which is determined by the mortgage lender’s discretion, rather than the Bank of England Base Rate.

Looking for finance?

Let us help you find the best financial product in the market. We will guide you through the whole process and make sure you get the best deal.

See your Funding Options

Eligibility & Criteria

Buy-to-let (BTL)

A property which you want to purchase with the aim of letting it out to another party.

Looking for finance?

Let us help you find the best financial product in the market. We will guide you through the whole process and make sure you get the best deal.

See your Funding Options

Debt service coverage ratio (DSCR)

A measure of the cashflow you have available to pay your debt obligations — in other words, the ratio of your monthly repayment amount versus your overall cashflow position.

Looking for finance?

Let us help you find the best financial product in the market. We will guide you through the whole process and make sure you get the best deal.

See your Funding Options

Forced Sale Value (FSV)

The asking price you could achieve if you were forced to sell the property as soon as possible. Forced sale value is usually lower than Open Market Value because you wouldn’t have time to wait for the best offer to come in.

Looking for finance?

Let us help you find the best financial product in the market. We will guide you through the whole process and make sure you get the best deal.

See your Funding Options

Loan-to-value (LTV)

The ratio of the amount you want to borrow versus the total value of the property. For example, to purchase a property worth £1million at an LTV of 75% would mean your mortgage covered £750,000 and you’d have to put in £250,000 yourself.

LTV is an important metric in commercial property finance because it determines how much of a buffer the lender has between the potential sale price and the amount lent, and therefore has implications for the risk of the deal.

Looking for finance?

Let us help you find the best financial product in the market. We will guide you through the whole process and make sure you get the best deal.

See your Funding Options

Open Market Value (OMV)

The asking price you could achieve if you could afford to wait for a few months to sell the property. Open market value is usually higher than Forced Sale Value because you have time to wait for the best offer to come in.

Looking for finance?

Let us help you find the best financial product in the market. We will guide you through the whole process and make sure you get the best deal.

See your Funding Options

Planning Permission (PP)

Formal legal permission from a local authority for the development or alteration of property, commonly needed for most commercial and residential developments.

Looking for finance?

Let us help you find the best financial product in the market. We will guide you through the whole process and make sure you get the best deal.

See your Funding Options

Standard Variable Rate (SVR)

The variable interest rate of a mortgage which is determined by the mortgage lender’s discretion, rather than the Bank of England Base Rate.

Looking for finance?

Let us help you find the best financial product in the market. We will guide you through the whole process and make sure you get the best deal.

See your Funding Options

Security

Lenders often require security when offering commercial mortgages — it helps to offset their risk when providing large mortgages for offices, warehouses or other commercial premises. These tips should help clarify some of the common doubts we’ve come across in the minds of buyers.

Buy-to-let (BTL)

A property which you want to purchase with the aim of letting it out to another party.

Looking for finance?

Let us help you find the best financial product in the market. We will guide you through the whole process and make sure you get the best deal.

See your Funding Options

Debt service coverage ratio (DSCR)

A measure of the cashflow you have available to pay your debt obligations — in other words, the ratio of your monthly repayment amount versus your overall cashflow position.

Looking for finance?

Let us help you find the best financial product in the market. We will guide you through the whole process and make sure you get the best deal.

See your Funding Options

Forced Sale Value (FSV)

The asking price you could achieve if you were forced to sell the property as soon as possible. Forced sale value is usually lower than Open Market Value because you wouldn’t have time to wait for the best offer to come in.

Looking for finance?

Let us help you find the best financial product in the market. We will guide you through the whole process and make sure you get the best deal.

See your Funding Options

Loan-to-value (LTV)

The ratio of the amount you want to borrow versus the total value of the property. For example, to purchase a property worth £1million at an LTV of 75% would mean your mortgage covered £750,000 and you’d have to put in £250,000 yourself.

LTV is an important metric in commercial property finance because it determines how much of a buffer the lender has between the potential sale price and the amount lent, and therefore has implications for the risk of the deal.

Looking for finance?

Let us help you find the best financial product in the market. We will guide you through the whole process and make sure you get the best deal.

See your Funding Options

Open Market Value (OMV)

The asking price you could achieve if you could afford to wait for a few months to sell the property. Open market value is usually higher than Forced Sale Value because you have time to wait for the best offer to come in.

Looking for finance?

Let us help you find the best financial product in the market. We will guide you through the whole process and make sure you get the best deal.

See your Funding Options

Planning Permission (PP)

Formal legal permission from a local authority for the development or alteration of property, commonly needed for most commercial and residential developments.

Looking for finance?

Let us help you find the best financial product in the market. We will guide you through the whole process and make sure you get the best deal.

See your Funding Options

Standard Variable Rate (SVR)

The variable interest rate of a mortgage which is determined by the mortgage lender’s discretion, rather than the Bank of England Base Rate.

Looking for finance?

Let us help you find the best financial product in the market. We will guide you through the whole process and make sure you get the best deal.

See your Funding Options

How to choose

The sheer variety of commercial mortgage options on the market offers great competition for the finance that you can obtain. Here’s a quick run-down of the important things to bear in mind when looking for a commercial mortgage.

Buy-to-let (BTL)

A property which you want to purchase with the aim of letting it out to another party.

Looking for finance?

Let us help you find the best financial product in the market. We will guide you through the whole process and make sure you get the best deal.

See your Funding Options

Debt service coverage ratio (DSCR)

A measure of the cashflow you have available to pay your debt obligations — in other words, the ratio of your monthly repayment amount versus your overall cashflow position.

Looking for finance?

Let us help you find the best financial product in the market. We will guide you through the whole process and make sure you get the best deal.

See your Funding Options

Forced Sale Value (FSV)

The asking price you could achieve if you were forced to sell the property as soon as possible. Forced sale value is usually lower than Open Market Value because you wouldn’t have time to wait for the best offer to come in.

Looking for finance?

Let us help you find the best financial product in the market. We will guide you through the whole process and make sure you get the best deal.

See your Funding Options

Loan-to-value (LTV)

The ratio of the amount you want to borrow versus the total value of the property. For example, to purchase a property worth £1million at an LTV of 75% would mean your mortgage covered £750,000 and you’d have to put in £250,000 yourself.

LTV is an important metric in commercial property finance because it determines how much of a buffer the lender has between the potential sale price and the amount lent, and therefore has implications for the risk of the deal.

Looking for finance?

Let us help you find the best financial product in the market. We will guide you through the whole process and make sure you get the best deal.

See your Funding Options

Open Market Value (OMV)

The asking price you could achieve if you could afford to wait for a few months to sell the property. Open market value is usually higher than Forced Sale Value because you have time to wait for the best offer to come in.

Looking for finance?

Let us help you find the best financial product in the market. We will guide you through the whole process and make sure you get the best deal.

See your Funding Options

Planning Permission (PP)

Formal legal permission from a local authority for the development or alteration of property, commonly needed for most commercial and residential developments.

Looking for finance?

Let us help you find the best financial product in the market. We will guide you through the whole process and make sure you get the best deal.

See your Funding Options

Standard Variable Rate (SVR)

The variable interest rate of a mortgage which is determined by the mortgage lender’s discretion, rather than the Bank of England Base Rate.

Looking for finance?

Let us help you find the best financial product in the market. We will guide you through the whole process and make sure you get the best deal.

See your Funding Options

Why use a mortgage broker?

Commercial mortgages are complex and regulated products. You typically require higher deposits than residential loans, and a financial provider will need to assess your application.

Mortgage brokers and whole-of-market intermediaries like Funding Options are here to assist you on your journey to securing a commercial mortgage. Here are six reasons a mortgage intermediary can help:

Buy-to-let (BTL)

A property which you want to purchase with the aim of letting it out to another party.

Looking for finance?

Let us help you find the best financial product in the market. We will guide you through the whole process and make sure you get the best deal.

See your Funding Options

Debt service coverage ratio (DSCR)

A measure of the cashflow you have available to pay your debt obligations — in other words, the ratio of your monthly repayment amount versus your overall cashflow position.

Looking for finance?

Let us help you find the best financial product in the market. We will guide you through the whole process and make sure you get the best deal.

See your Funding Options

Forced Sale Value (FSV)

The asking price you could achieve if you were forced to sell the property as soon as possible. Forced sale value is usually lower than Open Market Value because you wouldn’t have time to wait for the best offer to come in.

Looking for finance?

Let us help you find the best financial product in the market. We will guide you through the whole process and make sure you get the best deal.

See your Funding Options

Loan-to-value (LTV)

The ratio of the amount you want to borrow versus the total value of the property. For example, to purchase a property worth £1million at an LTV of 75% would mean your mortgage covered £750,000 and you’d have to put in £250,000 yourself.

LTV is an important metric in commercial property finance because it determines how much of a buffer the lender has between the potential sale price and the amount lent, and therefore has implications for the risk of the deal.

Looking for finance?

Let us help you find the best financial product in the market. We will guide you through the whole process and make sure you get the best deal.

See your Funding Options

Open Market Value (OMV)

The asking price you could achieve if you could afford to wait for a few months to sell the property. Open market value is usually higher than Forced Sale Value because you have time to wait for the best offer to come in.

Looking for finance?

Let us help you find the best financial product in the market. We will guide you through the whole process and make sure you get the best deal.

See your Funding Options

Planning Permission (PP)

Formal legal permission from a local authority for the development or alteration of property, commonly needed for most commercial and residential developments.

Looking for finance?

Let us help you find the best financial product in the market. We will guide you through the whole process and make sure you get the best deal.

See your Funding Options

Standard Variable Rate (SVR)

The variable interest rate of a mortgage which is determined by the mortgage lender’s discretion, rather than the Bank of England Base Rate.

Looking for finance?

Let us help you find the best financial product in the market. We will guide you through the whole process and make sure you get the best deal.

See your Funding Options

Glossary

Buy-to-let (BTL)

A property which you want to purchase with the aim of letting it out to another party.

Looking for finance?

Let us help you find the best financial product in the market. We will guide you through the whole process and make sure you get the best deal.

See your Funding Options

Debt service coverage ratio (DSCR)

A measure of the cashflow you have available to pay your debt obligations — in other words, the ratio of your monthly repayment amount versus your overall cashflow position.

Looking for finance?

Let us help you find the best financial product in the market. We will guide you through the whole process and make sure you get the best deal.

See your Funding Options

Forced Sale Value (FSV)

The asking price you could achieve if you were forced to sell the property as soon as possible. Forced sale value is usually lower than Open Market Value because you wouldn’t have time to wait for the best offer to come in.

Looking for finance?

Let us help you find the best financial product in the market. We will guide you through the whole process and make sure you get the best deal.

See your Funding Options

Loan-to-value (LTV)

The ratio of the amount you want to borrow versus the total value of the property. For example, to purchase a property worth £1million at an LTV of 75% would mean your mortgage covered £750,000 and you’d have to put in £250,000 yourself.

LTV is an important metric in commercial property finance because it determines how much of a buffer the lender has between the potential sale price and the amount lent, and therefore has implications for the risk of the deal.

Looking for finance?

Let us help you find the best financial product in the market. We will guide you through the whole process and make sure you get the best deal.

See your Funding Options

Open Market Value (OMV)

The asking price you could achieve if you could afford to wait for a few months to sell the property. Open market value is usually higher than Forced Sale Value because you have time to wait for the best offer to come in.

Looking for finance?

Let us help you find the best financial product in the market. We will guide you through the whole process and make sure you get the best deal.

See your Funding Options

Planning Permission (PP)

Formal legal permission from a local authority for the development or alteration of property, commonly needed for most commercial and residential developments.

Looking for finance?

Let us help you find the best financial product in the market. We will guide you through the whole process and make sure you get the best deal.

See your Funding Options

Standard Variable Rate (SVR)

The variable interest rate of a mortgage which is determined by the mortgage lender’s discretion, rather than the Bank of England Base Rate.

Looking for finance?

Let us help you find the best financial product in the market. We will guide you through the whole process and make sure you get the best deal.

See your Funding Options