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
Loan-to-Value (LTV) Expectations
| Lender Type | Max LTV | Notes |
|---|---|---|
| High-street banks | Up to 70% | Requires strong financials |
| Challenger banks | 70–75% | Flexible on criteria |
| Specialist lenders | Up to 80% | Higher rates, more flexible |
| Bridging lenders | Up to 75% | Short-term only |
Should You Use a Commercial Mortgage Broker?
Absolutely. Here’s why:
| Broker Advantage | Impact |
|---|---|
| Market knowledge | Access to niche and specialist lenders |
| Deal structuring | Tailors the loan to your specific needs |
| Time-saving | Manages paperwork, applications and progress |
| Problem-solving | Helps overcome poor credit, complex structures |
| Better outcomes | Often results in better rates and terms |
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.
Next Steps: How to Get Started
Speak to a Specialist Broker – They’ll assess your goals and outline your options
Get Pre-Approved (DIP) – Know what you can borrow
Find Your Property – If not already sourced
Prepare Your Documents – Financials, ID, business plan
Start the Application – With the broker guiding the process
Final Checklist: Are You Ready?
| Question | Yes/No |
|---|---|
| Do you know the property you want to buy/refinance? | |
| Do you have a deposit of 25% or more? | |
| Do you have your financials up to date? | |
| Are you willing to provide security via the property? | |
| Have you spoken to a broker? |
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