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Commercial Mortgage Deposit: Everything You Need to Know

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If you’re looking to mortgage a commercial property, you may be wondering how much deposit you need to put down. Unlike residential mortgages, the deposit amount for commercial mortgages is negotiable to some extent. In this piece, we will delve into the primary elements affecting the required deposit amount, delve into the choices available for borrowers with minimal deposits, and highlight how a seasoned commercial mortgage broker can guide you to secure the most favorable terms.

Factors that affect the deposit amount include the type of commercial property you’re looking to mortgage and your personal circumstances. We’ll cover these in more detail and explain how a broker can help you get the most out of your deposit.

Key Takeaways

  • The deposit amount for commercial mortgages is negotiable to some extent.
  • Factors that affect the deposit amount include property type and personal circumstances.
  • An experienced commercial mortgage broker can help you get the best deal.

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What is the deposit requirement for a commercial mortgage?

To obtain a commercial mortgage, you will typically need to provide a deposit of 20% to 40% of the property’s value. The required deposit amount may vary depending on the perceived risk of the loan. Repayment terms can be up to 25 years and monthly repayments are based on straight-line repayment profiles.

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Speak to Our Expert on Commercial Mortgages

When it comes to commercial mortgages, each application is assessed on its own merits with rates and terms dependent on the perceived level of risk. To maximise your chance of approval, it’s important to work with a dedicated specialist broker who can help you navigate the complex world of commercial mortgages. They can provide bespoke advice, negotiate with lenders on your behalf, and help you build a strong relationship with your lender and relationship manager. Speak to our expert today to get started.

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Will My Circumstances  Affect The Deposit Level

When applying for a commercial mortgage, the deposit amount required will depend on a variety of factors. These factors include industry experience, profitability, business type, credit file, loan type, and property type. Each lender has their own way of working out the level of risk, but these factors are typically taken into consideration.

Established businesses that are performing well are seen as less risky than start-ups or struggling companies. Consequently, securing a loan with a minimal deposit becomes more probable. Just as a robust business strategy with consistent positive results over several years and promising projections will be deemed low-risk by mortgage providers. However, uncertainties regarding profitability – and hence affordability – might necessitate a more substantial deposit upon approval.

Businesses perceived as higher risk, like pubs and nightclubs, usually need a bigger deposit compared to an office space for a stable business. If there’s a record of poor credit associated with you or your business, lenders will approach with caution. This caution is manifested in limited lending options and increased deposit demands. In such scenarios, seeking a commercial mortgage from a niche provider might be the most suitable path.

Commercial property buyers who intend to use the space themselves are generally viewed as less risky compared to those securing a commercial investment mortgage. The latter is akin to a buy-to-let arrangement, where your capacity to fulfill payment obligations hinges not only on your financial health but also on that of your renters. It’s uncommon to obtain a commercial investment mortgage with less than a 25% deposit.

Buildings with unconventional designs or those needing extensive refurbishments often demand a larger deposit. Some lenders set a baseline deposit amount, regardless of the loan’s value ratio.

Therefore, it is important to consider these factors when applying for a commercial mortgage and ensure that you have the necessary deposit amount. By understanding the risks associated with your circumstances, you can work towards securing the best deal possible.

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The options for borrowers with a low deposit

If you have a low deposit, you may be able to take out a 100% commercial mortgage with no cash deposit. However, you will need to put up other assets as security against the loan. These assets may be owned by the business or by you personally, such as equipment or another property. If you are borrowing against another property, you will only be able to borrow against your equity, and the provider will need to approve a second charge if you have a mortgage on the asset.

As commercial lending is quite flexible, it’s not uncommon to use a combination of cash and assets to form a deposit. However, with a low deposit, your pool of lenders will be smaller, and you will be considered higher risk. This can result in higher interest rates in some cases.

Some lenders may offer fixed or variable interest rates, with or without early repayment charges, arrangement and security fees, and capital repayment holidays. It’s important to carefully consider the terms and conditions of any loan before borrowing.

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What Are My Options for Funding Deposit

While cash is the most straightforward way to fund your deposit, lenders understand that this may not be feasible for everyone. In addition to cash, lenders may consider other options such as working capital, external investment, bridging finance (if you intend to sell the property), commercial finance, or a combination of these methods. It’s worth discussing your finances with your broker, as they may be able to identify a creative way to maximize your deposit amount to ensure you get the best deal.

Lenders may want to verify the source of the deposit before approving a loan. Gifted deposits may also be an option, so it’s important to discuss all possibilities with your broker.

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How Can a Broker Help?

Whether you have a large or small deposit, negotiating a commercial mortgage deal can be a complex and daunting process. This is where a mortgage broker comes in. A specialist commercial mortgage broker has insider knowledge and can help you get the most from your deposit. They can quickly identify the lenders most likely to lend to someone in your position based on their appetite for risk. They will act as your advocate in negotiating the best deal according to the amount of deposit you have to put down.

By using a whole of market broker, you can access a wide range of products and lenders, giving you more options and increasing your chances of getting a good deal. If you need help from a specialist commercial broker, get in touch and we contact you immediately.

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We Are Expert Commercial Mortgage Brokers

When it comes to commercial mortgages, finding the right lender and the right deal can be a daunting task. This is where a broker who specialises in commercial mortgages can help you. They have the experience and knowledge to guide you through the process, and they can help you find the best deal for your specific needs.

Our broker service is designed to help you find the right mortgage. We will use our experience and network of contacts to secure the best deal for your commercial mortgage.

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Frequently Asked Questions

What percentage deposit is typically required for a commercial mortgage?

The deposit required for a commercial mortgage typically ranges from 20% to 40% of the purchase price of the commercial property. The exact percentage required will depend on various factors such as the borrower’s creditworthiness, the type of property, and the lender’s policies.

How are commercial mortgage deposits calculated?

Commercial mortgage deposits are calculated as a percentage of the purchase price of the property. For example, if the purchase price of a commercial property is £500,000 and the lender requires a 30% deposit, the borrower would need to provide a deposit of £150,000.

Are commercial property deposits protected by law?

Commercial property deposits are not protected by law in the same way that residential property deposits are. However, some lenders may offer protection schemes to safeguard the deposit in the event of default or bankruptcy.

What are the best commercial mortgage lenders?

The best commercial mortgage lenders will depend on the borrower’s individual circumstances and requirements. It is recommended to research and compare different lenders to find the most suitable option. 

What is the process for obtaining a commercial mortgage?

The process for obtaining a commercial mortgage typically involves an application process, credit checks, property valuation, and legal work. It is recommended to work with a reputable commercial mortgage broker to guide you through the process and help you find the best deal.

What should I consider when choosing a commercial mortgage broker?

When choosing a commercial mortgage broker, it is important to consider factors such as their experience, reputation, and fees. It is recommended to research and compare different brokers to find the most suitable option for your individual needs. Additionally, checking their credentials and reviews can help ensure you are working with a reputable professional.

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Legal Information & Disclaimer

This site is an information only site. All of our articles are written by authorised mortgage brokers for the only aim of providing great, useful, mortgage and loan related information. We intent to offer the best possible suggestions and guides however can’t always guarantee to be perfect, please use the information at your own risk. We can’t accept responsibility if things go wrong. Please contact us via our contact page if you see anything that requires changing and we will do so as soon as possible.

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** The content provided in this page is correct at the time of writing. Mortgage and loan lender’s qualifying criteria and rules change frequently so speak to an adviser to confirm the most up to date rules and criteria. The content on the website is not specific advice to each reader, and does not constitute financial recommendations.