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Commercial Mortgage Guide
What is a Commercial Mortgage?
A commercial mortgage is a loan secured against business property, allowing companies to purchase or refinance premises such as offices, shops, warehouses, or investment properties. These mortgages typically offer different terms and rates compared to residential mortgages.
Key Features of Commercial Mortgages
- Loan-to-value ratios typically 60-80% (requiring 20-40% deposit)
- Interest rates generally higher than residential mortgages
- Terms ranging from 5-30 years
- Personal guarantees often required
- Professional valuation mandatory
Types of Commercial Properties
Office Buildings: Traditional business premises including serviced offices and corporate headquarters.
Retail Units: Shops, shopping centres, and high street premises.
Industrial Properties: Warehouses, manufacturing facilities, and distribution centres.
Mixed Use: Properties combining residential and commercial elements.
Frequently Asked Questions
Most commercial mortgages require a deposit of 20-40% of the property value. The exact amount depends on factors such as the property type, your business finances, and the lender’s criteria.
Commercial mortgage rates are typically 1-3% higher than residential rates due to increased risk. Rates vary based on loan-to-value, term length, and borrower circumstances.
Yes, commercial mortgages are available for buy-to-let commercial properties. Lenders assess rental income potential and your experience as a commercial landlord.
You’ll typically need business accounts (2-3 years), personal financial statements, property details, business plan, and proof of deposit funds.
Commercial mortgage applications typically take 6-12 weeks from application to completion, depending on the complexity of the case and property type.
Commercial Mortgage Considerations
Interest Rate Options
Fixed Rate: Your interest rate remains the same throughout the fixed period, typically 2-10 years. This provides payment certainty but may be higher than variable rates.
Variable Rate: Rates can change based on Bank of England base rate or lender’s standard variable rate. Payments may fluctuate but could benefit from rate reductions.
Tracker Rate: Follows the Bank of England base rate plus a set margin. More transparent than standard variable rates.
Repayment Methods
Capital and Interest: You pay both the loan amount and interest monthly. The loan balance reduces over time, building equity in the property.
Interest Only: You only pay the interest monthly, with the full loan amount due at the end of the term. Requires a credible repayment strategy.
Additional Costs to Consider
- Arrangement fees (0.5-2% of loan amount)
- Legal fees (£1,500-£5,000+)
- Commercial property valuation (£1,000-£5,000)
- Broker fees (if applicable)
- Stamp Duty Land Tax (varies by property value and use)
References
Bank of England. (2024). Bank Rate decisions and minutes. London: Bank of England.
HM Revenue & Customs. (2024). Stamp Duty Land Tax: Commercial property and land. London: HMRC.
Financial Conduct Authority. (2024). Mortgages and Home Finance: Conduct of Business Sourcebook. London: FCA.
Royal Institution of Chartered Surveyors. (2024). Commercial Property Valuation Standards. London: RICS.
British Bankers’ Association. (2024). Commercial Lending Guidelines and Best Practice. London: UK Finance.