Commercial Mortgages: The Complete Guide for UK Businesses and Investors

A commercial mortgage is a long-term loan secured against property used for business, either premises your own company trades from or property you let to tenants. It suits trading businesses that want to stop paying rent and own their premises, and investors buying or refinancing commercial, semi-commercial or let property. Growth Business Finance (GBF) arranges commercial mortgages and real estate finance from £1m to £100m, priced deal by deal.

Key facts

• Size: GBF arranges real estate finance from £1m to £100m.
• Pricing: from 1% over Bank Rate, which is currently 3.75%. Every deal is priced on its own merits.
• Loan to value: up to 75% of the property value.
• Term: up to 25 years.
• Portfolio finance: up to 75% LTV across a portfolio of let properties.
• Two main types: owner-occupied (assessed on trading profit) and investment (assessed on rental income).
• Security: a first legal charge over the property, often with a debenture or guarantees depending on the deal.

How a commercial mortgage works

A commercial mortgage works much like a residential mortgage, but the underwriting is built around a business or a rental income stream rather than personal salary. The lender takes a first legal charge over the property and lends a percentage of its value, the loan to value (LTV). You repay over an agreed term, either on a capital and interest basis or, on some investment loans, interest only for part or all of the term.

Pricing is usually expressed as a margin over Bank Rate for a variable rate, or as a fixed rate for an agreed period. GBF arranges commercial mortgages from 1% over Bank Rate, at up to 75% LTV and over terms of up to 25 years.

Owner-occupied commercial mortgages

These are for businesses buying or refinancing the premises they trade from, such as an office, warehouse, factory, clinic, shop or hotel. The lender looks mainly at the profitability of the trading business and whether its cash flow comfortably covers the repayments. For many SMEs, the attraction is that the monthly payment builds equity in an asset rather than paying a landlord.

Commercial investment mortgages

These are for landlords and property companies buying or refinancing property let to third parties. The lender looks mainly at the rent, the length and quality of the leases and the strength of the tenants. Landlords with several properties may be better served by portfolio finance, which GBF arranges at up to 75% LTV across a portfolio.

Semi-commercial and mixed-use property

A building with a shop below and flats above, or a business that trades from part of a property and lets the rest, sits between the two. Lenders treat these cases differently, so the framing of the application matters.

Who commercial mortgages suit

Commercial mortgages work across most sectors, but some property types need lenders with specialist appetite:

• Care homes and private healthcare, where the property and the operating business are closely linked and lenders look at occupancy, regulation and fee mix
• Hospitality, including hotels, pubs and restaurants, where trading-based valuations are common
• Industrial and logistics premises for manufacturers, distributors and transport and logistics operators
• Professional services and offices, often owner-occupied by the business
• Portfolio landlords with a mix of commercial, semi-commercial and residential investment property

Costs and terms

GBF arranges commercial mortgages from 1% over Bank Rate, up to 75% LTV and up to 25 years. The actual rate and terms depend on:

• LTV: lower leverage usually means keener pricing and more lender choice
• Property type and location: standard industrial and office property in good condition is easier to finance than specialist or trading assets
• Trading strength or rental cover: how comfortably profit or rent covers the repayments
• Lease quality: for investment property, the length of the leases and the strength of the tenants
• Fixed or variable: a fixed rate gives certainty but may carry early repayment charges

Beyond the interest rate, budget for an arrangement fee, a RICS valuation, your own legal costs and usually the lender's legal costs, plus any taxes on purchase. Always compare the full cost over the fixed period or expected life of the loan, not just the headline rate.

Eligibility and what lenders look at

Lenders consider four broad areas:

1. The property: value, condition, use, location, tenure and how easily it could be sold or relet.
2. The borrower: the trading history and profitability of the business, or the experience of the landlord, plus the credit record of the company and its directors.
3. Affordability: for owner-occupiers, whether trading profit covers the debt with headroom. For investors, whether rent covers interest by the margin the lender requires.
4. The deposit or equity: at up to 75% LTV you will need at least 25% of the value from your own funds or existing equity.

Newer businesses, unusual property types and complex ownership structures can still be financed, but they narrow the field of lenders and put more weight on presentation.

Refinancing and equity release

Commercial mortgages are not only for purchases. Many of the most useful deals are refinancings of property a business or investor already owns.

• Refinancing onto better terms. If your current facility is nearing expiry, has become expensive or carries restrictive covenants, a refinance can reduce cost or add flexibility. Start well before the expiry date so you are not negotiating under pressure.
• Releasing equity. Where a property has risen in value or the loan has been paid down, the equity can be released to fund expansion, refurbishment, an acquisition or a shareholder buyout, subject to LTV and affordability.
• Separating property from the trading business. Some owners move premises into a separate property company and lease them back to the trading business. This can help with succession and future sale planning, but the tax and legal advice needs to come first.
• Consolidating a portfolio. Landlords with several loans across different lenders can sometimes simplify into one portfolio facility with a single set of terms.

In each case, the lender will look at the property and the borrower as if it were a new loan, so the same documents and preparation apply.

Documents you will need

• Two to three years of filed accounts for the trading or property company
• Current management accounts
• Recent business bank statements
• Details of the property, including any existing valuation, title information and planning use
• For investment property, the leases, a rent schedule and tenant information
• A schedule of existing borrowing and security
• Personal asset and liability statements for the main shareholders and directors
• For a purchase, the agreed price and heads of terms

Commercial mortgages compared with the nearest alternatives

Common mistakes to avoid

• Applying under the wrong category. Treating a part-let building as pure investment, or vice versa, can cost you on rate and LTV.
• Focusing only on the headline rate. Fees, early repayment charges and covenants can outweigh a small difference in margin.
• Underestimating the timeline. Valuations, title checks and legal work take time. If you face a hard deadline, plan a bridge in advance.
• Ignoring existing debt. Lenders will want to understand all current borrowing and security, including any debenture held by your bank.
• Not reviewing an existing mortgage. Built-up equity can often be released or refinanced on better terms.
• Over-leveraging. Borrowing the maximum LTV leaves little room if values or trading move against you.

How a broker and debt adviser like GBF helps

GBF is a commercial finance broker and debt adviser, not a lender. We run the debt process so you can focus on the business and the property.

1. Initial review. We look at the property, your accounts or rent roll, and your plans, and give a clear view of the realistic options.
2. Structuring. We decide whether owner-occupied, investment, portfolio or a combined structure fits best, and model the impact of different LTVs and terms.
3. Credit paper. We prepare a credit paper that presents the property and the business clearly.
4. Lender selection. We approach the lenders best suited to the deal from our whole-of-market panel of 650+ lenders, from banks to specialist property lenders.
5. Negotiation. We compare offers on rate, fees, covenants and early repayment terms and negotiate on your behalf.
6. Completion. We work with valuers and solicitors to keep the deal moving through to drawdown.

To test repayments before you start, use our financial calculator, and see our commercial mortgages and property finance page for the full range of real estate facilities we arrange.

FAQs

How much deposit do I need for a commercial mortgage?

GBF arranges commercial mortgages at up to 75% LTV, so you would typically need at least 25% of the property value from your own funds or existing equity. Some deals need more, depending on the property and the borrower.

What interest rate will I pay on a commercial mortgage?

GBF arranges commercial mortgages from 1% over Bank Rate, which is currently 3.75%. The rate you are offered depends on LTV, property type, trading or rental strength and term, and is priced deal by deal.

How long can a commercial mortgage run?

Terms of up to 25 years are available. Shorter terms are common on investment loans and refinancings.

Can a limited company or SPV take out a commercial mortgage?

Yes. Most commercial mortgages are taken by limited companies, including special purpose vehicles set up to hold property. Lenders will usually want to understand the wider group and may ask for guarantees.

How long does a commercial mortgage take to complete?

It depends on the valuation, title and legal work. Straightforward cases move faster than complex or specialist property. If timing is critical, a bridging loan can secure the purchase while the long-term mortgage is arranged.

Can I release equity from property my business already owns?

Yes. A refinance or capital raise against existing property can fund growth, acquisitions or refurbishment, subject to LTV and affordability.

Is a commercial mortgage better than renting?

For many established businesses, owning premises builds equity and gives control over the property. It also ties up a deposit and adds debt, so it should be weighed against your growth plans and other uses of capital.

Next step

If you are buying, refinancing or releasing equity from commercial property from £1m upwards, start with check what you could raise for an initial view, or call Growth Business Finance on 020 3432 2341. Finance is subject to status and lender approval.

Tom Renshaw

Founder and Managing Director, Growth Business Finance

Tom arranges business loans, asset based lending and property finance for UK SMEs and mid-market companies. More about GBF