Commercial Mortgage Guide | An Insider’s Look at Commercial Mortgages
Are you considering a commercial mortgage to buy, refinance, or expand a business or property investment portfolio?
Whether you are purchasing an office, retail unit, industrial space, or mixed-use premises, commercial lending requires careful planning and strong documentation.
Unlike residential loans, commercial mortgages involve stricter affordability checks, larger deposit requirements, and more complex terms based on property type and business income.
This guide offers practical insight into the UK commercial mortgage process to help you prepare, reduce delays, and improve approval chances.
What Is a Commercial Mortgage?
A commercial mortgage is a loan secured against commercial property (i.e., not your home). It allows businesses to buy, refinance, or develop property for business use.
Examples of eligible properties include:
Offices
Warehouses
Retail units
Industrial premises
Care homes
Buy-to-let portfolios (under commercial terms)
Why Consider a Commercial Mortgage?
| Benefits | Why It Matters |
|---|---|
| Long-Term Stability | Fixed or variable rates over longer periods offer financial predictability |
| Equity Growth | Property ownership can increase your business’s net worth |
| Rental Income | Own and let out part or all of the property |
| Refinancing Options | Improve cash flow, consolidate debts or release equity |
| Tailored Terms | Commercial mortgages can be structured to suit your business cash flow |
Who Are Commercial Mortgages For?
| Borrower Type | Use Case |
|---|---|
| Trading businesses | Purchasing or refinancing premises for own use |
| Property investors | Acquiring or refinancing rental portfolios |
| Developers | Funding new builds or major refurbishments |
| SMEs & Startups | Securing a first business premises (subject to criteria) |
Types of Commercial Mortgages
| Mortgage Type | Details | Best For |
|---|---|---|
| Owner-Occupied | Business occupies the property | Trading companies |
| Commercial Investment | Property let to tenants | Landlords or investors |
| Semi-Commercial | Mixed-use (e.g., shop + flat) | Landlords with diverse portfolios |
| Bridging Finance | Short-term funding solution | Developers, auction buyers |
| Development Finance | Funding for ground-up builds or conversions | Property developers |
Key Eligibility Criteria
| Factor | What Lenders Look For |
|---|---|
| Credit History | Clean credit, or explanations for past issues |
| Business Financials | Profit & loss, balance sheet, forecasts |
| Experience | Particularly for investors & developers |
| Deposit/Equity | Typically 25-40% deposit required |
| Valuation | Professional property valuation required |
| Tenancy Details (for investment) | Lease length, tenant profile, rental yield |
Costs Involved in a Commercial Mortgage
| Cost Type | Typical Range | Notes |
|---|---|---|
| Interest Rates | 2.5% to 8%+ | Based on risk, term, lender |
| Arrangement Fees | 1% to 2% of loan | May be added to the loan |
| Valuation Fees | £500 to £5,000+ | Based on property value |
| Legal Fees | £1,000 to £3,000+ | Both parties pay their own |
| Broker Fees | 0.5% to 1% | Often worth the expertise |
| Early Repayment Charges | Varies | Check terms closely |
How Long Does It Take?
| Step | Typical Timeframe |
|---|---|
| Initial consultation & DIP | 1–5 working days |
| Property valuation | 1–2 weeks |
| Legal due diligence | 2–6 weeks |
| Completion | 6–12 weeks total (typical) |
Tip: Using a specialist broker can speed things up and prevent costly delays.
Mythbusters: Common Misconceptions About Commercial Mortgages
| Myth | Reality |
|---|---|
| “You need perfect credit.” | Not true. Specialist lenders often consider applications with minor issues. |
| “They’re only for big businesses.” | Many SMEs and even startups secure commercial mortgages. |
| “Rates are always sky-high.” | Rates vary widely. Strong businesses may secure competitive rates. |
| “It’s quicker to rent.” | In the long term, ownership often brings more control and value. |
| “All commercial mortgages are the same.” | There’s a wide variety tailored to different borrower needs. |
What Documents Will You Need?
To prepare for an application, ensure you have:
Last 2-3 years’ accounts (or forecasts if new business)
Bank statements (business & personal, usually 3-6 months)
Business plan (especially for startups)
Details of the property
Tenancy agreements (for investment properties)
Proof of identity & address
Real-Life Example: Growth Through Ownership
Company: Small marketing agency in Manchester
Goal: Buy their own office instead of renting
Solution: £300,000 commercial mortgage at 70% LTV
Result: Saved £1,200/month compared to rent, gained asset ownership, and unlocked future equity
“Buying our office wasn’t just a property decision — it was a growth strategy.”
– Managing Director, Local Marketing Co.
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FAQ: Commercial Mortgage Guide
| Question | Answer |
|---|---|
| 1. What is a commercial mortgage? | A commercial mortgage is a loan secured on a property used for business purposes. It allows companies or investors to buy offices, retail units, warehouses, or mixed-use buildings. |
| 2. Who can apply for a commercial mortgage? | Commercial mortgages are available to limited companies, partnerships, sole traders, and investors purchasing or refinancing business premises. |
| 3. How much deposit do I need? | Most lenders require a deposit of 25% to 40% depending on the property type, business performance, and credit profile. |
| 4. What types of commercial mortgages are available? | There are two main types: Owner-Occupied (for businesses buying their own premises) and Commercial Investment (for investors buying property to let to tenants). |
| 5. How is a commercial mortgage different from a buy-to-let mortgage? | A commercial mortgage is secured against business premises and assessed on trading performance, while a buy-to-let mortgage is for residential properties rented to individuals. |
| 6. What interest rates apply to commercial mortgages? | Rates vary depending on the lender, loan size, deposit, and risk profile. Typically, commercial rates are higher than residential mortgages due to increased risk. |
| 7. Can I get a commercial mortgage through a limited company? | Yes. Many investors use a limited company structure to buy commercial or semi-commercial properties for tax efficiency and portfolio management. |
| 8. What documents are required for an application? | Lenders usually request business accounts for two to three years, bank statements, proof of ID, property details, and a business plan or forecast. |
| 9. How long does the process take? | The average commercial mortgage application takes between six and twelve weeks, depending on the complexity of the deal and how quickly documents are provided. |
| 10. Can I get 100% financing? | It’s rare, but possible if additional security such as another property or director guarantees are provided. Most lenders require a minimum deposit. |
| 11. Are there arrangement fees? | Yes. Expect lender arrangement fees of around 1% to 2% of the loan amount plus valuation and legal fees. Your adviser will provide a breakdown before the application. |
| 12. What if my business has limited trading history? | Some specialist lenders offer commercial mortgages to new businesses or start-ups if there is a strong business plan and additional security. |
| 13. Can foreign investors apply for a UK commercial mortgage? | Some lenders will consider non-UK residents or overseas companies, but lending criteria are stricter and may require a higher deposit. |
| 14. What happens at the end of the term? | You can refinance, switch lenders, or repay the remaining balance. Many borrowers review their deal every few years to ensure they remain on competitive terms. |
| 15. Why use a mortgage adviser for commercial property? | A specialist commercial mortgage adviser can access lenders and deals not available directly to the public, helping you secure better terms and structure your finance efficiently. |