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A commercial mortgage, sometimes called a business mortgage, is the finance you need if you are aiming to buy or refinance a property used for business purposes.
Finding the best commercial mortgage rates requires careful research and comparison to ensure you secure the most cost-effective deal.
A commercial mortgage is a loan secured against a fully or semi-commercial property. Commercial mortgages can be used to purchase business premises, expand operations, or acquire an existing business. Examples of commercial properties include shopping centres, office buildings, industrial warehouses, and blocks of apartments.
Conducting a thorough commercial mortgage comparison ensures you access the lowest commercial mortgage rates available.
There is a marked difference between the commercial mortgages offered by high street banks and specialist commercial mortgage lenders, both in terms of their interest rate pricing but also their criteria. The difference between high street banks and specialist lenders can be significant in terms of interest rate pricing, loan-to-value (LTV) ratio, and repayment terms. For example:
By using a commercial mortgage finder, businesses can effectively compare commercial mortgages, weighing up key factors such as rates, fees, and lender flexibility. Shopping around can result in securing the best business mortgage rates for your circumstances.
A commercial mortgage can finance any income-generating business or investment property. Commonly financed properties include:
There are two primary types of commercial mortgage products:
The primary advantage of an owner occupied commercial mortgage is owning an asset that will appreciate over time rather than being a tenant, paying similar monthly rent payments that contribute nothing to your net worth. It leaves you in control of your space, taking away the worry of eviction, unwanted changes or rent hikes.
Some property investors will purchase commercial property with the intention of renting it to business owners while sitting on an appreciating asset. Rather than buying a commercial property using cash, an investor is likely to apply for a commercial buy to let mortgage to fund the purchase or to refinance a premises they already own.
Investors can use a commercial buy to let mortgage to finance properties they lease to businesses. Instead of purchasing a property outright with cash, many investors use a commercial mortgage finder to locate the best rates and loan structures. Commercial buy to let mortgage comparison tools allow investors to find lenders who offer flexible terms and competitive interest rates.
The investor may find ways to increase the rental yield as well as the value of the site by changing the use to better reflect the demand in the area. For example, a high street building used solely for retail may be adapted and converted to allow for residential dwellings that can be sold or rented out.
The maximum loan will vary from lender to lender, which is why it’s important to compare commercial mortgages. The amount you can borrow will be decided following an assessment of you and your business’ financial circumstances. Lenders need to know that the business is profitable enough to be able to service mortgage and interest payments over a period of many years.
Some lenders are flexible and will be willing to consider additional assets or forms of income and factor them into their assessments.
The loan will also be a maximum percentage of the property value. For example, a commercial mortgage of £200,000 against a commercial property worth £400,000 is 50% loan-to-value.
Businesses with strong financial records may be eligible for commercial refinance rates that enhance borrowing power.
Lenders assess multiple factors when determining commercial mortgage rates:
Using a commercial mortgage finder allows businesses to efficiently compare rates and fees across lenders. See our price comparison table for indicative business commercial mortgage rates.
At the moment, commercial mortgage rates range from 5.5% to 9%, but the rate you will be offered will depend on the size or your deposit, the type of commercial property you want to purchase and whether you want to secure a fixed or variable rate.
Because every application is weighed on its own merits, it’s difficult to give you an indication of the rate you’ll pay without knowing the details of your purchase. That is why we built a commercial mortgage rates comparison site so you can plug in the details we need to give you an estimate of your costs.
Commercial property lenders will use the information you provide to determine if they are in a position to accept your application based on the information you provided.
As with all mortgages, the more deposit you put down, the lower your commercial mortgage rate will be. But Loan-to-value is just one of the things that impact the rate you will be charged. To obtain the lowest commercial mortgage rates, businesses should:
Let’s take a look at the other factors that most affect the cost of your commercial mortgage.
This will have quite a significant impact on the commercial mortgage rates that you’re likely to be offered. The more you have invested in the property the lower the risk to the lender, and they’ll reward you for that with a lower commercial mortgage rate. If you have the cash available, it’s worth putting a higher deposit down in order to get access to the best commercial mortgage rates.
If you’re an owner-occupier, the sector you are operating in is likely to impact your rate too, and again this correlates with the level of risk your business is deemed to be.
Commercial mortgage lenders will usually demand a higher rate for recession vulnerable sectors such as retail, hospitality, pubs and hotels. Although this may seem unfair, it makes sense as these are the areas of spending that are typically first to go when we get squeezed – so these businesses are deemed higher risk.
On the other side of the scale, if you’re in the market for a premises for your GP, Dentist Surgery or Veterinary Surgery you’ll see the best commercial mortgage rates as these are deemed essential services that aren’t likely to go under in an economic downturn.
Similarly to residential mortgages, you’ll find that fixed rate commercial mortgages are pricier than commercial mortgage variable rates – this is because you’re paying to be protected from base rate rises.
If you’ve operated in your chosen market for a while and have evidence of strong books (what commercial mortgage lenders like to call ‘sustained affordability’), you’re likely to be rewarded with a lower commercial mortgage rate.
The shorter the term, the better the deal in the eyes of your commercial mortgage lender. Not choosing the maximum term indicates that the deal is affordable for you, which means the likelihood of you defaulting is smaller – hence the lower commercial mortgage rate!
You’re likely to secure a lower rate in London than you would for the same premises in Scarborough for instance. Again, this ties into likelihood of business success and whether right or wrong, some areas are less vulnerable to economic downturns.
Perhaps not a term you’re familiar with so let us explain. This applies to buy-to-let commercial property. A commercial mortgage lender will look at the tenant you have in situ and assess the risk of them going out of business or falling behind on rent. Having a big brand like Lidl in your unit under a 15-year lease is much lower risk than having an independent tenant in situ. Investors who lease their units to big brands benefit from covenant strength and usually benefit from the best commercial mortgage rates.
If you’ve just used our commercial mortgage comparison tool, you’ll notice commercial mortgage rates are a bit higher than what you’re used to seeing for standard residential mortgages.
There are a few reasons for this. It costs commercial lenders more to borrow the money they lend, so they naturally have to charge their borrowers more money.
Secondly, commercial mortgages are much more specialist and need higher-skilled and more experienced teams to assess, underwrite and lend the money than required for residential. If you compare the valuation for a residential mortgage vs a commercial mortgage, you’ll see how much more there is to it!
Finally, the commercial property market is much smaller than the residential market, so prices are slightly higher as there aren't economies of scale to bring the overall cost down.
On Propp.io! We have a spread of commercial mortgage lenders on our panel from across the whole market including high street banks and challenger banks.
By using our commercial mortgage comparison tool, you can access their rates, fees and costs right here on the site. Just fill in the information at the top of the page and our comparison engine will show you the best business mortgage rates tailored to your needs.
Our team of commercial finance experts will then work with you to match you with the best lender for your goals and support you throughout the whole application until the money lands in the bank.
Yes, most of the time. Commercial mortgages require you to provide a higher deposit than a residential mortgage, typically between 25% and 40%. Given that commercial property is usually more expensive than a residential home this can end up being quite a substantial sum, but the more deposit you have the better your chances are of securing the finance you are looking for. In some scenarios, such as GP Practices, where their income is more secure, a commercial mortgage lender is happy to lend to a higher loan to value.
In the case of commercial property, the nil-rate band is £150,000, and above that, stamp duty is payable on the increase in value. For example, in the case of a commercial property purchased for £200,000, nothing would be due on the first £150,000. However, 2% stamp duty would be payable on the remaining £50,000. Anything over £250,000 will be charged at a rate of 5%.
There are commercial stamp duty rates whether you are purchasing a freehold property or acquiring a leasehold.
Since stamp duty can be applied to outright property purchases, new lease premiums, or existing lease prices, the calculations can be confusing when calculating Stamp Duty on commercial property.
If a commercial lease is involved, the rules surrounding stamp duty can become even more confusing. The amount of stamp duty payable can depend on a few things:
It also worth noting that any VAT paid is included in the calculation.
In addition to stamp duty, you must pay an additional charge based on the value you calculate for the lease. For amounts below £150,000, there is no tax, and for amounts between £150,001 and £5,000,000, there is a 1% tax. A 2% tax is applied to any portion worth more than £5 million. For more information on this, check out the HM Revenue & Customs commercial property stamp duty calculator.
If you are applying for commercial finance, you will also have to consider the following costs:
Don’t hesitate to contact us if you have questions about the fees charged or if you are worried you are paying too much. With our help, you will find the right lenders with the most competitive fee structures.
Typically, the mortgage term for a commercial property is shorter than a residential mortgage, unlikely to be the 30-to-40-year term we may see for a residential mortgage. When applying for a commercial mortgage, you can expect to provide trading business accounts and up-to-date bank statements to demonstrate the current trading position of your business. You may be asked to provide a personal guarantee for some or all of the debt.
If you are looking to purchase or refinance a mixed-use property, you will need a semi-commercial mortgage. By mixed-use, we mean a property that is made up of a combination of commercial and residential. For example, a retail shop with a flat above, or a Bed and Breakfast.
A commercial owner occupied mortgage is secured against the premises you run your business from. Some lenders will only want to lend a commercial mortgage to owner occupiers. So, if you own the commercial property but let it to another business, Commercial mortgage brokers (us!) can help you negotiate for the best commercial mortgage from lenders that are happy to work with commercial investment mortgages.
The term ‘mixed-use’ can mean the commercial building also has an element of residential inhabitant, for example, a flat above a shop. This is also known as semi-commercial. Sometimes the term mixed-use can also mean that the business owner personally lives in the building. Because you are living in the commercial premises, it can complicate applications because you are using it for your own residential use, which brings a more stringent element of FCA regulation for lenders.
To secure the best commercial mortgage rates, businesses should leverage a commercial mortgage finder to conduct a commercial mortgage comparison.
Here at Propp, that’s what we do!
Whether looking for commercial refinance rates, commercial investment mortgage rates, or owner occupied commercial mortgages, working with the best commercial mortgage brokers ensures access to the most competitive deals.
We work closely with every client to understand what you need to raise finance for. We also need to understand how long the funds are required and what type of commercial property lending will be best suited to your needs. On top of this, we will look at:
Let Propp.io help you compare commercial mortgages and secure the lowest commercial mortgage rates for your business today!
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