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Is it difficult to get a loan for a commercial property? Explained

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Commercial Mortgages

A commercial mortgage is a type of secured finance used to purchase or refinance commercial property and land. Commercial mortgages are similar to residential mortgages in that the monthly repayments cover the amount borrowed and the interest charges. The loan-to-value ratio (LTV) is the size of the mortgage in relation to the property’s total value. Most commercial mortgage lenders offer up to 75% of the property’s total value.

This is How Commercial Mortgages work

Commercial mortgages are secured finance, meaning the property acts as collateral. If you default on the repayments, the creditor could take possession of your asset. Your ability to obtain a commercial mortgage will depend on your company’s trading history. The lender will require two to three years of filed accounts to ensure that you can afford the mortgage and meet the repayment terms.


The loan provider evaluates factors like loan amount, LTV, credit profile, and your company’s financial situation to determine the interest rate. Those who intend to utilize the property for their own business typically receive lower interest rates. Commercial mortgage rates can be either fixed or variable. The variable rates for commercial mortgages usually follow the Bank of England Base Rate.

If you’re buying a commercial property for your business, consider the possibility of securing an interest-only commercial mortgage. In this arrangement, you pay only the interest on your loan monthly and settle the principal amount when the mortgage term concludes.

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Commercial Mortgage Types

There are three types of commercial mortgages: owner-occupied, commercial buy-to-let, and residential buy-to-let. The type of commercial mortgage you choose will depend on how you plan to use the property.

1. Owner-Occupied

Owner-occupied commercial mortgages are designed for businesses that intend to occupy the premises themselves. This type of commercial mortgage is suitable if your business is expanding and needs to acquire another premises, or if it is buying its first commercial property.

2. Commercial Buy-to-Let

If your business is planning to buy a property to rent out to another business, you could consider taking out a commercial buy-to-let mortgage. You need to ensure that the property’s rental income will cover the mortgage payments, and you also have to prepare a tenancy schedule.

3. Residential Buy-to-Let

Buy-to-let mortgages are designed for individuals or enterprises looking to purchase a property to lease to occupants. Some entrepreneurs, after securing a commercial mortgage, opt to establish a limited company.

It is essential to understand the benefits and drawbacks of each type of commercial mortgage before making a decision. The best option for you depends on your circumstances and plans.

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When considering a commercial mortgage, it’s important to factor in the fees in addition to the interest rates. The fees associated with a commercial mortgage can vary depending on the lender, so it’s important to understand all the costs involved before committing to a loan.

  • Stamp Duty Land Tax is a fee that is payable on properties that cost above certain amount. It is calculated as a percentage of the purchase price.

  • Arrangement fees are usually charged after approval, but some lenders may require upfront arrangement fees in case the loan doesn’t go ahead. These fees can range between 0.5% to 2.5% of the amount borrowed.

  • Mortgage broker fees can start at around 1% of the total loan value if you use a specialist commercial mortgage broker.

  • Valuation fees are charged before the mortgage is approved and can start at around £500. The lender’s valuer will visit the property and assess its worth.

  • Legal costs can include insurance, site surveys, and the preparation of property deeds.

It’s important to keep in mind that these fees can add up quickly, so make sure to budget accordingly. Additionally, some lenders may have additional fees that are not listed here, so it’s always a good idea to ask for a full breakdown of all fees associated with the loan.

The Lenders

When it comes to commercial mortgages, you have three types of lenders to choose from: high street banks, challenger banks, and niche and specialist lenders. Each type of lender has its own strengths and weaknesses, and the right lender for you will depend on your specific circumstances and goals.

High street banks typically offer better rates, but their eligibility criteria can be more difficult to satisfy. They may require a higher debt service coverage ratio, which is the cashflow you have available to pay your debt obligations.

Challenger banks, on the other hand, are more flexible and have a greater appetite for business. They generally have lower DSCR requirements, which means their income threshold for commercial mortgages can be easier to satisfy. However, they can be more expensive than high street banks and often have higher exit fees for the duration of the mortgage.

Smaller specialist lenders tend to be the most flexible overall. If you’re a newer business and want a commercial mortgage, a niche lender may be your best bet. They are often prepared to lend to shorter trading histories and have lower affordability criteria.

Using a commercial mortgage broker like us can help you find the right finance provider for your needs. We work with many UK’s business finance lenders, so we can match you to the options that best suit your requirements.

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How to Apply for Commercial Mortgage

To get a commercial mortgage, you need to follow a few steps. First, identify a lender and submit an ‘asset liability’ form. Then, complete the commercial mortgage application form and provide legal information about your company. The property will be valued, and legal due diligence will be carried out. If your application is approved, you’ll receive a mortgage offer.

To speed up the process, prepare the following documents:

  • Proof of identity and address
  • Bank statements for the last three months
  • Trading information for the last three years
  • Lease/tenancy agreements

It’s important to note that lenders will generally only offer up to 75% of the total value of the property. That means you will need to make up the difference to buy your new premises. Lenders will generally ask for a cash deposit for the remaining amount.

If you need help exploring and matching with the best financial product for your business, we can guide you through the whole process and help you get the best deal. Getting a quote is free and won’t affect your credit score.

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Frequently Asked Questions

What do commercial mortgage lenders consider when assessing loan applications?

When assessing loan applications for commercial mortgages, lenders consider several factors such as the creditworthiness of the borrower, the value and type of the property, the borrower’s financial history, and the borrower’s ability to repay the loan. The lender will also evaluate the borrower’s business plan and projected cash flow to ensure that the borrower can meet the loan’s repayment terms.

What is the typical loan-to-value ratio for commercial property mortgages?

The loan-to-value (LTV) ratio for commercial property mortgages typically ranges from 60% to 75%. This means that the lender will lend the borrower up to 75% of the property’s value, and the borrower must provide the remaining 25% as a down payment.

Which banks offer the most competitive rates for commercial property loans?

Several banks and financial institutions offer commercial property loans with competitive rates, including Barclays, HSBC, Lloyds Bank, NatWest, and Santander. However, the rates and terms of the loan will depend on several factors, such as the borrower’s creditworthiness, the type and value of the property, and the loan-to-value ratio.

What are the advantages and disadvantages of a buy-to-let commercial mortgage?

A buy-to-let commercial mortgage allows borrowers to purchase a property with the intention of renting it out to tenants. The main advantage of this type of mortgage is that it can provide a steady stream of rental income. However, the main disadvantage is that the borrower is responsible for maintaining the property and finding tenants, which can be time-consuming and costly.

Can self-employed individuals apply for commercial property mortgages?

Yes, self-employed individuals can apply for commercial property mortgages. However, they may need to provide additional documentation, such as tax returns and bank statements, to prove their income and creditworthiness.

What is the maximum loan amount that can be borrowed for a commercial property?

The maximum loan amount that can be borrowed for a commercial property depends on several factors, such as the value of the property, the borrower’s creditworthiness, and the loan-to-value ratio. In general, lenders may offer loans ranging from £50,000 to £10 million for commercial properties.

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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.

The articles on our site do not provide financial advice. Instead, they aim to equip you with the necessary information to attain your mortgage objectives. 

** 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.