Commercial Mortgages

What is a commercial investment mortgage?

A commercial mortgage funds the purchase of a commercial property such as a retail unit, office, warehouse, or industrial building that you intend to lease out to a business tenant, rather than occupy yourself. Lending is assessed heavily against the rental income the property can generate, but commercial lending also weighs the tenant’s covenant strength, lease terms, and the property’s underlying use class.

How much deposit do I need for a commercial investment property?

Deposit requirements are typically around 25-35% of the property value. This varies significantly by property type, tenant strength, and lease length.

Does the tenant's business matter to the lender?

Yes, significantly. Lenders assess the tenant covenant -essentially, how financially strong and reliable the tenant business is- because your ability to service the mortgage depends on them paying rent. A well-established tenant on a long lease is viewed very differently to a new or financially weaker business on a short rolling lease, even if the property itself is identical.

What lease length do lenders want to see?

A lease must be in place for a minimum of a year ,often longer. There’s no fixed rule, but longer leases with a reasonable amount of time remaining are generally viewed more favourably, as they provide more certainty of income over the mortgage term.

Can I get a commercial mortgage on an empty (vacant) unit?

It’s possible but the borrower will need a higher deposit or additional security in place. On a semi-commercial unit, the income from the residential part may be used to cover the cost of the purchase. In other circumstances a commercial broidging facility may need to be used.

What types of commercial property can I invest in?

Common categories include retail units, offices, industrial and warehouse space, mixed-use buildings (commercial with residential above), medical centres or care facilities.

Should I buy a commercial investment property personally or through a limited company?

This depends on your tax position, whether you’re building a wider portfolio, and how you intend to draw income from the investment – similar considerations to residential buy-to-let. Many investors use a limited company (SPV) structure for commercial property, particularly if they’re already holding other property investments this way, but it’s worth modelling both routes properly rather than assuming one is automatically better.

What costs are involved beyond the mortgage itself?

Typical costs include valuation fees, legal fees (yours and often the lender’s), arrangement fees, and potentially a commercial survey depending on the property type. Ongoing costs to budget for include buildings insurance, and if the property is subject to VAT (common with certain commercial property), this needs factoring into your purchase and lease structure.

What is an owner-occupier commercial mortgage?

This is a mortgage for a business purchasing the premises it will actually trade from – for example, a shop owner buying their retail unit, or a manufacturer buying their factory. Unlike a commercial investment mortgage, lending is assessed against your business’s trading performance and ability to afford repayments, not third-party rental income.

How much can I borrow to buy my trading premises?

Lending is primarily assessed against your business’s ability to service the debt; usually reviewed through your trading accounts, profit levels, and cash flow rather than against rental income, since there’s no external tenant. Loan-to-value is commonly available up to around 70-75% for established, profitable businesses, though this varies by lender and sector.

Do I need trading history to qualify?

Most lenders want to see at least two to three years of trading accounts to properly assess affordability.

Is it better to buy or lease my business premises?

There’s no universal answer. Buying builds equity in an asset and removes exposure to rent increases or lease renewal negotiations, but ties up capital and reduces flexibility if your space needs change.

Can I buy my premises through my limited company?

Yes, this is the most common structure for owner-occupier commercial mortgages, with the trading company (or sometimes a separate property-holding company that leases the unit back to the trading business) taking on the mortgage. There are various ways to structure this depending on your tax position and long-term plans, including using a Self-Invested Personal Pension (SIPP) or Small Self-Administered Scheme (SSAS) in some cases – this is worth discussing alongside your accountant.

What happens if my business needs different premises later?

If you outgrow or need to move from a property you own, your options generally include selling it, renting it out to another business tenant. You must inform the lender if your circumstances change.

Can I get a mortgage to buy premises for a brand-new business with no trading history?

It’s more challenging, since lenders have no trading performance to assess, but not impossible. Criteria will be heavily based on your past history as a business owner, other ventures you run and the set-up of the new company. If a long term commercial mortgage is not available, commercial bridging might fill the gap.

What costs should I budget for beyond the mortgage?

Alongside the usual valuation, legal, and arrangement fees, owner-occupiers should budget for any fit-out or refurbishment costs to make the space suitable for trading, business rates (distinct from residential council tax), and ongoing buildings insurance. If the purchase price includes VAT, this also needs factoring into your cash flow, even though it may later be reclaimable depending on your VAT registration status.

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