Understanding Commercial Mortgages

Commercial mortgages, sometimes known as business mortgages, are mainly utilised by business owners who are looking to expand their company and purchase property for commercial use. 

What is a Commercial Mortgage?

A commercial mortgage is a loan secured against a property that is used wholly or mainly for business purposes, these can include offices, shops, warehouses, industrial units or mixed-use buildings.

How do Commercial Mortgages work?

Commercial mortgages work differently from residential and buy-to-let mortgages in several ways, these include: 

Deposits
Deposit requirements for commercial mortgages vary between lenders and will depend on factors such as the property, borrower and purpose of the loan. 

Interest Rates and Terms
Interest rates can vary depending on factors such as the lender, property and borrower circumstances The terms can also vary depending on the lender, property, and borrower, but commercial mortgages commonly run for around 5 to 25 years.

Repayment vs Interest Only
Owner-occupiers often opt for a repayment mortgage, gradually reducing the balance until they own the property outright. Interest-only borrowing can reduce monthly repayments, but the capital balance remains outstanding and will need to be repaid at the end of the term.

Types of Commercial Mortgages

Owner-occupied commercial mortgages – Designed for businesses buying the premises they operate from, such as restaurants, bars and other trading businesses.

Commercial investment mortgages – suited to investors purchasing commercial property to let, including shops, offices, and mixed-use buildings.

Specialist sector mortgages – Tailored to specific industries such as healthcare, childcare, and hospitality, taking into account the particular ways lenders assess value, income, and risk within each sector.

Who can apply for a Commercial Mortgage?

Business owners – May be used by business owners looking to purchase premises for their own operations, whether that’s an office, shop, restaurant, warehouse, surgery, or other commercial property.

Limited companies – Businesses purchasing or refinancing commercial property through a company structure.

Property investors and landlords – For those buying commercial property to let to tenants and generate rental income.

Self-employed professionals – Including doctors, dentists, solicitors, accountants, and other professionals looking to purchase premises for their practice.

Developers – Those looking to purchase, refinance, or develop commercial property, subject to the lender’s criteria.

Lenders will typically consider factors such as your income, deposit, credit history, business performance, the property itself, and how the mortgage will be repaid. Requirements vary considerably between lenders, particularly for specialist or more complex properties.

This information is provided for general guidance only and does not constitute personal financial advice. 

Your property may be repossessed if you do not keep up repayments on your mortgage.