Commercial mortgages
If you want to invest in a property but can’t afford or don’t want to buy it outright, a commercial mortgage could be the solution you’re looking for. You can get a commercial mortgage if you're buying a premises for your own business or want to invest in a property to rent out to individuals, families or other companies.
Commercial mortgage fees
When working out the total cost of your mortgage, you’ll need to consider fees as well as interest rates. Like interest rates, fees vary according to the lender, so make sure you understand the costs involved before making a commitment.
Stamp duty land tax
Stamp duty land tax is payable on properties that cost £150,000 or more, and is priced as a percentage of the purchase price.
Arrangement fees
Arrangement fees are usually charged after approval, however, some lenders insist on upfront arrangement fees in case the loan doesn’t go ahead – these range between 0.5% to 2.5% of the amount borrowed.
Mortgage broker fees
Mortgage broker fees usually start at around 1% of the total loan value if you use a specialist commercial mortgage.
Valuation fees
Valuation fees are charged before the mortgage is approved and can start at around £500 (the lender's valuer will visit the property and assess what the property is worth).
Legal costs
Legal costs often include insurance, site surveys and the preparation of property deeds.
How does Funding Options work?
Tell us how much you need
We’ll ask a few questions about your business and the reason for your loan.
Get quotes instantly
Our smart technology will compare quotes from up to 120+ lenders to help you find the ideal business loan.
Apply for a Business Loan 🎉
We'll be there to guide you through every step of the process.
Trusted by over 18,600 customers
Types of commercial mortgage
Three categories
Commercial mortgages fall into one of three categories: owner-occupied, commercial buy-to-let and residential buy-to-let. The type of commercial mortgage you opt for will depend on how you’re planning to use the property. What’s best for you depends on your circumstances and plans, so be sure to understand the benefits and drawbacks before making a decision.
Owner-occupied commercial mortgage
Owner-occupied commercial mortgages are designed for businesses who intend to occupy the premises themselves. Your business might use this type of commercial mortgage to buy its first commercial property, or it might opt for an owner-occupied commercial mortgage if it’s expanding and needs to acquire another premises.
Commercial Buy-to-Let mortgage
If your business is planning to buy a property to rent out to another business, it could consider taking out a commercial buy-to-let mortgage. You’ll need to ensure that the property’s rental income will cover the mortgage payments and you’ll also have to prepare a tenancy schedule.
Residential Buy-to-Let mortgage
Residential buy-to-let mortgages are for individuals or businesses who want to buy a property to rent out to residents. Some business owners who take out a commercial mortgage decide to set up a limited company.
How much can you afford to borrow?
If you're ready to take your business to the next level, use our business loans calculator to get an idea of what you can afford.
Want to understand the cost of your loan?
Use our business loan calculator below to find out how much you can borrow to take your business to the next level.
Calculations are indicative only and intended as a guide only. The figures calculated are not a statement of the actual repayments that will be charged on any actual loan and do not constitute a loan offer.
Monthly payments
-
Monthly interest
-
Total interest
-
Length of loan
-
Total cost of loan
-
Financial product information
Representative example*
• 7.63% APR Representative based on a loan of £50,000 repayable over 24 months.
• Monthly repayment of £2,252.94. The total amount payable is £54,070.56
*Some lenders may apply fees during the application process, please note that these are set and provided by these entities.
Annual Percentage Rates
Rates from 2.75% APR
Repayment period
1 month to 30 years terms
What is a commercial mortgage?
Commercial property
A commercial mortgage (also known as a business mortgage) is among the most common types of business finance for commercial property and land purchases.
3 - 25 years
Typically, a commercial mortgage lasts anywhere from three to 25 years.
Alternative options
If you’re looking to buy or refurbish a property and need to secure shorter-term finance, it could be worth exploring development loans or bridging finance instead.
Learn more about commercial mortgages
How do commercial mortgages work?
Commercial mortgages are similar to residential mortgages in that – in most cases – the monthly repayments cover the money borrowed and interest charges.
The size of your mortgage in relation to the value of the commercial property you want to buy is known as the loan-to-value ratio (LTV). The majority of commercial mortgage lenders are willing to provide up to 75% of a property’s total value.
Your ability to get a business mortgage will also depend on your company’s trading history. The lender wants to know that you can afford the mortgage and meet the repayment terms; as such, they will require two to three years of filed accounts.
A commercial mortgage is a type of secured finance. An asset, such as the flat, house or commercial premises you’re buying, will act as collateral. This means that if you default on the repayments the creditor could take possession of your asset.
Interest rates
The lender will consider the loan size, LTV, credit history and your business’ financials when working out the interest rate.Interest rates tend to be lower for those who plan to use the property as their own business premises.
Rates can be fixed or variable – variable rate commercial mortgages track either the Bank of England Base Rate or LIBOR (London InterBank Offered Rate).
If you’re purchasing a commercial property for your company, you might be able to take out an interest-only commercial mortgage. This is where you repay the interest charged on your loan each month and repay the full amount borrowed at the end of the commercial mortgage term.
Commercial mortgage lenders
There are three types of commercial mortgage lenders: high street banks, challenger banks, and niche and specialist lenders. Each has its own advantages and disadvantages – the ‘right’ type of lender for you will depend on your circumstances and goals.
High street bank commercial mortgages could come with better rates. However, the eligibility criteria can be more difficult to satisfy. Commercial mortgages from high street banks may require a higher debt service coverage ratio (DSCR), which is the cashflow you have available to pay your debt obligations.
Challenger banks generally have a greater appetite to do business, and can help some of the businesses high-street banks can’t. DSCR requirements are usually lower, which means their income threshold for commercial mortgages can be easier to satisfy. However, they can be more expensive than high-street banks, and will often have higher exit fees for the duration of the mortgage.
Smaller specialist lenders tend to be more flexible overall. If you want a commercial mortgage but haven’t been in business long, a niche lender may be your best bet; they are often prepared to lend to shorter trading histories and have lower affordability criteria.
Using a platform like Funding Options can help you find the right finance provider for your needs. We're here to make the process of finding a business loan faster and easier for you; we work with dozens of the UK's business finance lenders, so we can match you to the options that best suit your requirements.
How to get a commercial mortgage
Once you’ve identified the lender, you’ll be required to submit an ‘asset liability’ form before completing the commercial mortgage application form and providing legal information about your company. The property will then be valued and legal due diligence carried out. You’ll receive a mortgage offer if your application is approved.
To help speed things along, prepare the following documents:
Proof of identity and address
Bank statements for the last three months
Trading information for the last three years
Lease/ tenancy agreements
Funding Options by Tide can help you explore and match with the best financial product for your business. We will guide you through the whole process and make sure you get the best deal. Getting a quote is free and won’t affect your credit score.
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.
