Mortgage Advisor & Director
Head of Bridging and Commercial
If you’re buying a commercial property for your own business use, whether that’s offices, a warehouse or any form of trading premises, you’ll need an owner-occupier commercial mortgage.
We look at when you might need one, how they work and how to get one.
What is an owner-occupier commercial mortgage?
An owner-occupier commercial mortgage is specifically used to purchase a property that you’ll use for your own business. In some cases it may even be possible to purchase multiple properties for your business with one commercial mortgage, assuming you will occupy them all for trading purposes.
There are a number of scenarios where you might need an owner-occupied commercial mortgage, such as:
- To buy a new property to operate a newly formed business from
- To add a property to an existing business that’s expanding
- To buy the premises your business is currently renting/trading from, to reduce costs
- To remortgage an existing owner-occupier property
- To renovate or expand an existing business premises
Like any commercial mortgage, you can opt to make capital or interest-only repayments on an owner-occupier business mortgage, although interest-only mortgages tend to be more suitable if you’re looking to keep costs low.
What types of businesses can get them?
You can get commercial mortgage as an individual, or as any of the following types of trading business:
- Partnership (LLP)
- Limited company
- Offshore company
- SPV (Special purpose vehicle)
- Pension fund or trust
Eligibility criteria
As with any mortgage, commercial owner-occupier mortgages are assessed based on risk. The lower the risk of your borrowing, the better the rates and greater number of lenders that will typically be available to you.
To apply for any commercial mortgage you need to products a business plan and usually meet the following criteria:
- A deposit of at least 25% - however, it may be possible to borrow more with asset-based security
- Affordability - this is usually based on your business profits and lenders tend to look at EBITDA (Earnings Before Interest, Tax, Depreciation and Amortisation) which will usually need to be a certain percentage (usually 125-250%) above your repayments per month. For a new business, projected income is used
- Industry experience - although it’s possible to get a commercial mortgage as a new business, a substantial trading history in your chosen industry will help. The type of business will also play a role in the lender’s decision, as lenders will want to assess longevity of trading
- Credit history - again there are bad credit commercial mortgage options available, but you will have access to more of the market with a strong credit score
Each lender has their own criteria, and therefore it’s worth speaking with our knowledgeable commercial mortgage brokers to secure financing most suited to you.
How to get an owner-occupier commercial mortgage
It’s best to speak to a broker that specialises in commercial mortgages, like ourselves when it comes to finding a commercial owner-occupier mortgage. Preparing a business plan to support your application can be complex, especially if you’re a new business.
We’ll be happy to assist you with the compilation of your supporting documentation, once we’ve searched the market to find your best commercial mortgage deal.
It’s a good idea to have the following available before you apply:
- Business bank statements*
- Business tax returns*
- Business plan and projected future earning - projections are particularly important for start up businesses
* You may also need to have these available in your own name, if you’re applying as an individual
Find a better commercial mortgage on Teito
Available lenders and interest rates
As a whole-of-market mortgage broker, we have access to deals from high street lenders, as well as challenger banks and specialist commercial mortgage lenders.
It’s important to compare all of the commercial lenders that we work with carefully, to ensure you’re securing the best deal for your business. Keep in mind that high street lenders are likely to have stricter criteria to meet than the more specialist options, some of whom only offer mortgages through an intermediary like ourselves.
While the interest rates from challenger banks and specialist lenders tend to be higher, they typically offer greater flexibility in terms of who they are willing to lend to.
Owner-occupier commercial mortgages generally have lower rates than commercial mortgages used for other purposes, such as investment property purchase, but a variety of factors will influence the interest rates you pay.
For example, those businesses that are considered low risk, such as medical and legal professional firms may pay less interest than a niche retail business.
Owner-occupier mortgages vs. renting a business premises
One of the major benefits of using an owner-occupier mortgage to purchase your business premises is that it can be much cheaper than renting commercial space. However, before you decide which is the right option for you, it’s a good idea to weigh up these options:
|
Pros of buying property with an owner-occupier commercial mortgage |
Pros of renting your commercial premises |
|
As owner you can adapt the property to suit your need |
There is a smaller initial financial outlay with renting, so you won’t need to find arrangement and legal fees |
|
Rent is essentially dead money that you could be re-investing by purchasing property as a business asset, which is likely to rise in value |
It’s possible (although less likely) that a business premises you purchase could lose value, which is not a concern when renting |
|
No concerns about rental increases or being asked to vacate your business premises |
Less financial commitment than a mortgage if you no longer require the premises or business dwindles |
|
Mortgage repayments are tax deductible as a business cost |
Business rental costs are also typically tax deductible |
Other alternatives to consider
If you’re looking to finance a business endeavour but a commercial mortgage is not an option, there are some alternatives to consider:
Bridging loans
Particularly helpful if you’re looking to buy quickly, such as an auction property, bridging loans can be much quicker to arrange than a commercial mortgage. However, repayment terms are much shorter (typically 1-3 years) and interest rates are typically higher.
Bridging loans can either be secured against the property you want to purchase or an existing asset. You can read more on our guide to commercial bridging loans.
Remortgaging to release equity
It may be possible to release equity from another commercial property that you already own, or even your residential property to fund a commercial property purchase, although not all mortgage lenders will support the latter.
You can either use the equity to buy a business property outright, or as a large deposit that could make a commercial owner-occupier mortgage viable for your business. You can read more in our guide to remortgaging to buy another property.
Why choose Teito for your commercial mortgage needs?
At Teito we have experienced commercial mortgage experts ready to help guide you through the process. They arrange owner-occupier mortgages every day and often have access to exclusive deals for borrowers seeking this type of finance.
We can offer:
- Brokers with specialist knowledge of owner-occupier commercial mortgages
- Exclusive rates and deals are available
- You first consultation for free with no obligation to proceed
- A 5-star rated service, according to leading review services
Ready to begin your journey and take advantage of a free, no-obligation chat with a broker who specialises in owner-occupier commercial mortgages? Get started here.
FAQs
It’s possible, and may be necessary if your business has been trading for less than a year, as some lenders will require at least 12 months of trading accounts for a commercial mortgage.
If you put a commercial mortgage in your own name, lenders will need to see both business and personal finances in order to make their decision.
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.