Commercial Mortgages & Finance

Two very different commercial mortgages

The phrase “commercial mortgage” covers two situations that lenders treat quite differently, so it’s worth being clear which one you’re in.

Commercial investment mortgages

You’re buying a commercial unit (a shop, an office, a warehouse) that’s let (or will be let) to a business tenant, and the rent is your return. Here the lending is yield-driven: the underwriter cares about the length of the lease, the strength of the tenant, and what the building would relet for if that tenant left. A unit let to an established national business on a long lease borrows more easily and more cheaply than one let to a new independent on a short agreement, though both can be financed with the right lender.

Owner-occupier commercial mortgages

You’re buying premises for your own business to trade from: the workshop, surgery, salon or office you currently rent. Now the lender is underwriting your business rather than a tenant: your accounts, your trading history, and whether the mortgage payment sits comfortably where your rent used to. For many established businesses, buying the freehold turns dead rent into equity, and it’s often more achievable than owners assume.

Typical terms: LTVs, rates and repayment

• Loan-to-value typically 65-75%, so expect a deposit of around 25-35%, with stronger covenants and sectors at the more generous end.
• Rates priced case-by-case: there’s rarely a published rate sheet in commercial lending. Pricing reflects the property, the tenant or business, and the overall strength of the case, which is exactly why presentation matters.
• Repayment or interest-only: owner-occupiers usually take capital repayment over 10-25 years; investors often prefer interest-only or part-and-part to protect cash flow.

How lenders assess affordability

Commercial serviceability is a different animal from buy to let stress tests:

• Owner-occupiers: lenders work from your business’s EBITDA (earnings before interest, tax, depreciation and amortisation), usually across two or three years of accounts, and want to see the debt covered with headroom to spare.
• Investors: it’s about the rental income and the lease terms: how far the rent covers the mortgage payment, how long the income is contracted for, and how secure the tenant paying it looks.

Buying through a company, or your pension

Most commercial purchases go through a limited company, and if you’ve read my limited company buy to let page the mechanics will feel familiar: the company borrows, the directors guarantee, and the structure needs setting up properly before the application goes in.

There’s also a route many business owners never hear about: buying your trading premises through a SIPP or SSAS pension. The pension owns the property, your business pays rent into your own pension pot, and there can be meaningful tax advantages. It’s a genuinely powerful structure in the right circumstances, but it lives at the junction of pension rules, tax law and lending, so please take advice from a qualified tax adviser and a regulated pension specialist before going down this road. I’ll happily work alongside them on the lending piece.

My role: packaging the case

Commercial lending is a relationship market. There’s no sourcing system that spits out the answer; the same case can be declined by one bank and welcomed by another at a sensible rate, purely because of sector appetite that month. What moves the needle is how the case is packaged: clean accounts, a clear story about the property and the income, the right supporting documents, and the application landing on the desk of a lender who actually wants that kind of deal. That’s the job I do. I build the case properly once, then take it to the lenders best placed to say yes, rather than letting you burn time and credit searches on the wrong doors.

And if the property is part-commercial, part-residential (a shop with flats above, say), you may be better served by a semi-commercial mortgage instead. It’s often the cheaper corner of the commercial market, and I’ll tell you honestly which side of the line your deal sits on.