Mortgage Advisor & Director
Head of Bridging and Commercial
Whether you’re looking to buy a new trading premises, expand your rental investment portfolio, or purchase a fully functioning business, a commercial mortgage could provide the finance you need.
We look at how commercial mortgages work, how to get one, and what to consider when you’re planning to apply.
What is a commercial mortgage?
Commercial mortgages, sometimes known as business mortgages, are used to buy property that’s not used for residential use. This could be:
- A buy-to-let property you plan to let to a business
- A commercial property, such as retail outlets or warehouse space that you plan to let to tenants or trade from with your own business
Or, you could also use one to fund:
- A remortgage on a commercial property that you already own
- Renovation of your existing investment portfolio or trading premises
- Purchase of commercial plant, stock or vehicles
- Purchase of an established business
Like a regular mortgage, repayment tends to be over a longer period than traditional business loans, and the interest rates are usually higher. Repayments can also still be deducted from your taxable profits, due to being an associated business cost.
Terms can be up to 40 years, but it’s common to borrow over a shorter duration, depending on your business needs. It’s also worth noting that arrangement fees are typically higher than for residential mortgages, usually around 2% of the loan value.
How do they work?
Commercial mortgages are far more bespoke than a traditional residential mortgage, so are arranged based on your needs, rather than ‘off-the-shelf’ products.
Unlike residential mortgages, most business mortgages are unregulated, which means lenders are not bound by the rules laid down by the Financial Conduct Authority. This means they have more flexibility to offer tailored deals, while you have more room to negotiate with them.
Fewer high street lenders offer commercial mortgages than residential, and those that do tend to be more restricted with their criteria, so it’s a good idea to look at more specialist lenders. At Teito, we have access to a wide selection of commercial mortgage lenders, and can help you to find the most suited for your needs.
What types of commercial mortgages are available?
As mentioned, commercial mortgages can be used for a variety of purposes, and you’ll find that lenders label them based on their purpose. Therefore you may need:
A Commercial investment mortgage (Or Buy-to-let)
A commercial investment or commercial buy-to-let mortgage is used to purchase or remortgage a property that you plan to let out for profits. Usually this would be property let for business use, but sometimes you might need a commercial investment mortgage for certain residential buy-to-let purchases, such as large HMO (House of multiple occupancy) property or student MUFB (Multi unit freehold block).
Owner-occupier commercial mortgage
Owner-occupier commercial mortgages are used when you plan to buy any type of business premises for your own trading purposes.
Semi-commercial mortgage
Semi-Commercial mortgages are used to purchase mixed use property and may include those that you intend to have both residential and business tenants in. For example, an apartment block with retail units below.
Eligibility criteria
Criteria tends to be stricter with high street lenders, but specialist commercial lenders can be fairly flexible, often allowing borrowing to be secured on assets, rather than a cash deposit. That said, you will typically need:
- At least 25% deposit - although it may be possible to borrow 100% LTV if secured on high-value assets
- A business plan - demonstrating industry experience, profitability and detailing how you’ll repay the loan. If you’re planning to let out the property, you’ll also need to provide the potential rental income value
- A decent credit history - this will apply to the business as well as director(s) if you borrow under the business’ name. Deals can sometimes be reached in a case-by-case basis if you have bad credit, since commercial lending can be flexible and bespoke
How to get a commercial mortgage
When looking to apply for a commercial mortgage it’s a good idea to speak to a broker, like ourselves, with experience of this form of finance. You’ll need to provide the relevant business plan, depending on the proposed use of any property or business that you plan to purchase, so it’s wise to prepare in the same way as you would when you bid for work.
Speak to a commercial mortgage expert at Teito today, to see how we could help you unlock the financial potential in your business.
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Property types you can invest in
There are a plethora of potential investment opportunities, whether you plan to rent to residential tenants, business tenants, or both. This includes, but is not limited to:
- Retail premises
- Factories
- Warehouses
- Leisure facilities such as pubs or gyms
- Offices
- Public service buildings such as healthcare facilities or colleges
- Places of worship
- Hotels, guest houses and B&Bs
- Farms and agricultural land
- Mixed-use property
Commercial mortgage calculators
Commercial mortgage calculators are hard to come by as affordability is calculated on a case-by-case basis. Most lenders will review your earnings before interest, taxes, depreciation, and amortisation (EBITDA) to get a clear picture of the business’ operating profit and offer you a mortgage based on that, but others take a more bespoke approach.
As the considerations of the lender are so broad, it’s too complex of a sum for an online calculator.
While you can work out the repayments using our mortgage repayment calculator once you know the specifics of your loan, it’s not possible to calculate how much you could borrow with a commercial mortgage using a calculator that you will find online.
What interest rates to expect
As lenders determine commercial interest rates in such a bespoke way, they don’t tend to be quoted, but they are usually higher than residential mortgages.
The exact rate you qualify for will be largely determined by your individual circumstances, such as:
- Loan size and purpose
- Your business trading history, finances and industry experience
- The industry itself, more niche businesses purposes can be harder to fund
- Business and personal credit history
- Deposit size/secured asset value
Which lenders are available?
We work with a wide range of commercial lenders, ranging from high street names, such as HSBC and Santander through to more specialist finance companies, like Lendinvest.
The most suitable lender for you will depend on your needs and circumstances, and we’ll happily make recommendations based on those that will be most beneficial to your needs.
Why choose Teito for your commercial mortgage needs?
At Teito we have specialist advisers with experience and knowledge in commercial lending and access to more than 20,000 mortgage deals.
Our first no-obligation consultation is always free of charge and our impartial commercial mortgage brokers will only make recommendations based on what’s best for you and your business.
See why we’re rated 5-stars across multiple review platforms by reaching out to speak to an adviser today - get started here.
FAQs
It may be possible to borrow 100% if you offer high-value freehold assets, such as property or land to secure your commercial borrowing. However, interest rates will reflect the risk involved in borrowing at this level.
This can be easier if you have a ‘quality covenant’ meaning a long-term and reliable tenant, such as a public body. However, largely the maximum LTV for commercial mortgages is around 65-75% LTV.
Read more in our guide to getting a commercial mortgage with no deposit.
Choosing an Adviser
Selecting a qualified and experienced mortgage adviser is of great importance. To choose a suitable adviser, evaluate their qualifications, experience, and reputation, and ensure they are regulated by the Financial Conduct Authority (FCA).
Read reviews from previous clients and make sure they provide a clear explanation of the products and services they offer, as well as the fees and charges associated with them.