If you’re looking to buy, refinance, or invest in a commercial property, you’ll likely need a commercial mortgage. These loans are specifically designed for properties that are used for business purposes — such as offices, shops, warehouses, or industrial units — rather than as somewhere to live.
What Is a Commercial Mortgage?
A commercial mortgage is a loan secured against a commercial property. It’s typically used by business owners who want to purchase their own premises, or by investors looking to buy property to let to other businesses.
Examples include:
- Office buildings or serviced offices
- Retail units and shops
- Industrial or warehouse spaces
- Pubs, restaurants, and care homes
- Mixed-use properties that include both commercial and residential elements
While the structure is similar to a residential mortgage, borrowing a lump sum and repaying it over time. commercial mortgages are tailored to the nature and performance of the business or property investment.
How a Commercial Mortgage Differs from a Residential Mortgage
While both types of loans are secured against property, commercial mortgages are generally more bespoke. Here’s how they differ:
- Purpose: A residential mortgage is for a home you live in, while a commercial mortgage is for property used to run or rent out a business.
- Assessment: Instead of looking only at personal income, lenders assess business performance, turnover, and projected rental income.
- Rates and terms: Interest rates are usually higher than residential ones, as commercial lending is considered higher risk. Terms are flexible and can range from 3 to 25 years.
- Documentation: Expect more detailed paperwork, including business accounts, leases, and property valuations.
Eligibility and Loan-to-Value (LTV)
Lenders assess commercial mortgage applications on a case-by-case basis, but some common criteria include:
- Strong business financials: Lenders will review your company’s profitability, cash flow, and future outlook.
- Deposit and LTV: Most commercial mortgages are capped at 60–75% loan-to-value (LTV), meaning you’ll usually need a deposit of at least 25%.
- Experience and track record: If you’re a business owner or property investor, your experience can strengthen your application.
- Property type: The building’s use, condition, and location all play a role in how much you can borrow and the terms offered.
Leasehold vs. Freehold Properties
Understanding the difference between freehold and leasehold properties is key when applying for any mortgage:
- Freehold: You own the property and the land it’s on outright. Lenders typically prefer this, as it offers long-term security.
- Leasehold: You own the property for a set number of years but not the land it’s built on. Some lenders may still consider leasehold properties, but they’ll usually require a minimum lease term remaining, often 50 years or more. You may have to factor in monthly charges to be paid to the leasehold company for your affordability.
Professional Advice and Support
Commercial mortgages can be more complex than standard residential loans, with a wide range of lenders, rates, and criteria to navigate.
At Morrow, we work across the whole of the market to help business owners and investors find tailored solutions that align with their goals, whether that’s purchasing new premises, expanding your portfolio, or refinancing existing assets.
