Commercial Property Investor Guide

Is commercial the new buy-to-let? An influx of investors are seeing commercial as an increasingly attractive option, but how much more is there to commercial property investment? Read our guide to learn the basics.

We’re seeing an influx of investors turn to commercial property in the face of buy-to-let margins being squeezed from all directions.

Commercial property is an attractive option given its exemption from the tax changes that hit buy to let and Stamp Duty is capped at 5% over £200,000.

However, there is much more to consider when purchasing commercial property so it is crucial you do your homework and consult a property finance expert like Propp before taking the leap.

Let’s dive into the need-to-knows if you’re thinking of becoming a commercial investor.

Finding a property

Unlike picking up a residential doer-upper, flipping it and letting it out, there is much more you need to be clued up on before proceeding with a commercial property.

You need to understand its asset class, as this will impact:

  1. How and whether you can finance the purchase
  2. Whether you need planning permission to make changes to the building or its use.

When deciding whether a commercial property is a viable investment you should consider its location, size, whether it has parking, or if it close to transport links. Familiarise yourself with the local area and think like a tenant if you’re planning to let the property out. If you wanted to rent the property, would it meet your needs.

Our free deal optimiser service saves on average £10,475.

By offering a free price comparison tool we place the power back in your hands. Our deal optimiser service forces lenders to compete for your business, saving you time and money. †

Compare & Optimise

Getting a Commercial Mortgage

1.  How much cash do you need upfront?

A commercial mortgage usually requires a larger deposit than needed for a residential buy to let mortgage. Usually, you’ll need to put at least 25% upfront but this will fluctuate dependent on the asset type you’re purchasing.

As a guide, anything on the high street will set you back 30%-35% but if you’re in the market for a care home or GP surgery you may not need to foot anything up front! Confusing, we know, but that’s why you work with a commercial mortgage expert whose job it is to know.

The LTV (Loan-to-value) will also depend on your level of experience, with commercial mortgage lenders being more flexible if you have a proven track record of commercial property investment or in business.

Whether you plan to purchase the unit and occupy it or let it out will also be a factor that decides the LTV.

2.  What does a commercial lender want to know?

Buy to let commercial mortgage

If you’re going to rent out the premises the lender will want to know how much rent tenants currently pay, how long is left on the lease and details of the tenants reliability. Have they managed to keep up with rent? This will be a solid indicator to the lender that the investment is viable. With this in mind, you may struggle to get a commercial buy to let mortgage if you are buying a vacant property that is not already tenanted.

Owner occupier commercial mortgage

The lender will want to understand how long you have been trading and will usually need to review two years worth of finalised accounts and up to date management accounts for the year so they can be confident your business is profitable enough to support the business mortgage. They will also normally ask to see your recent personal and business bank statements and a statement of assets, liabilities, income and expenditure (known as SALIE).You may find it difficult to purchase a commercial property as a start-up.

3.  Compare commercial mortgages before committing

Make sure you get the best deal possible by comparing commercial mortgage rates from a range of lenders in the market. Our comparison tool helps you get an idea of which commercial lenders may be interested in your deal and how much it could cost you to borrow.

Our property finance experts will negotiate the lenders on your behalf and get them competing for your business when you use our Optimiser service. They’ll then guide you through the process right the way through to completion.

Get in touch

Not sure what the best option is for you? Speak to one of our property finance consultants who are qualified to give you impartial advice, with no obligation.

We’re passionate about property, and would be happy to help.

Contact us

Get clued up on the lending landscape

Lenders play favourites

In the current climate, commercial lenders prefer to lend on assets like warehouses because the surge in online transactions during the pandemic means storage is in hot demand.

They’ll look upon retail units much less favourably given the struggle retailers face as the highstreet evolves in the face of changing consumer behaviour.

Hospitality venues such as pubs, restaurants and bars are also sitting low on lenders wish lists because of the uncertainty surrounding COVID, but if you know where to look and the proposition is a good one there are still lenders willing to take a look.

Size matters

Commercial lenders prefer a larger loan, for obvious reasons. They’re more willing to accept the risk that comes with lending if their return is higher. Having said that, high-street banks like Barclays and NatWest are offering smaller loans currently albeit with stricter criteria.

Know your responsibilities as a commercial landlord

Finally, if you’re looking to purchase the property to let, there’s much more you’ll need to be responsible for.

  1. Gas, fire and electrical safety
  2. Asbestos
  3. General maintenance and repair
  4. Minimum energy efficiency standards
  5. Commercial property insurance

Failure to meet the standards set out in any of these areas can result in hefty fines or even imprisonment.

In short, commercial property is a solid investment but before you’re lured in prematurely by what looks like a great deal – do your homework.

Commercial Loan Reviews

  • A Great Experience

    I was referred to Propp and my first contact was with Brad who quickly and efficiently arranged my loan in a particularly difficult market. Nicole very helpfully and ably assisted ensuring all paperwork and details were tied up in readiness for the solicitors whereupon Harriet took over and with her robust and pragmatic approach ensured the solicitors performed quickly. All three were extremely polite, professional and informative throughout so a big thank you to them.

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  • Excellent Brokers

    Excellent brokers, charges fees only after successful completion. Patience and work ethics are second to none. Great work by Brad, Megan & Harriet.

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  • Property Mortgage

    Brad and Megan were both professionals and very helpful in my mortgage application. Even though I encountered some difficulties, Megan solved them easily. Thank you very much to both.

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  • Mortgage Broker

    Louis from Propp has helped me find 3 mortgages for my Ltd company. He was very reliable and quick to answer any queries I had. He hunted through many mortgages to find the best ones for my circumstances. It was all handled quickly and professionally. I would recommend Louis to anyone wanting a good mortgage broker.

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  • I found Propp an excellent company to deal with.

    I found Propp an excellent company to deal with. Their staff both Brad and Harriet were excellent. Prompt attention, helpful and efficient made the whole process easy and stress-free. Highly recommend Propp to all property investors.

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  • Excellent Service

    I had the privilege of working with Melissa and Brad from Propp during the process of my remortgage, and I am delighted to express my utmost satisfaction with their outstanding assistance. Throughout the entire journey, they exhibited remarkable professionalism, consistently going above and beyond to ensure a seamless experience. Melissa and Brad's unwavering availability for communication and support was truly commendable, and their in-depth knowledge of the remortgaging landscape, particularly within the expertise of Propp, was evident. They effortlessly navigated the complexities involved, effectively addressing any concerns or queries that arose. Their exceptional communication skills, coupled with their ability to simplify complex concepts, made the entire process approachable and comprehensible. I wholeheartedly recommend Melissa and Brad from Propp to anyone seeking expert guidance and support in the realm of remortgaging, as their expertise and dedication truly set them apart.

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  • Brilliant Team!

    Brad and Harriet were proactively brilliant updating me through out the process and even going an extra mile chasing on my behalf where things seemed to have stalled. I will recommend without doubt!

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  • Brad and Megan made the process really easy.

    Will definitely be contacting them both on future financing needs. Propp is great highly recommend!

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* bespoke quotes supplied the next working day following provision of all required lender information being supplied and validation by Propp case manager

† saving based on annualised interest rate saving where deal optimiser service negotiated a lower rate than lender’s published rate, based on current average saving of 0.9% and average loan £1051785. Time saving based on automated versus manual bespoke rate requests.

The solutions above refer to unregulated products only. Should you require a regulated loan please contact us. As a mortgage is secured against your property it could be repossessed if you do not keep up the mortgage repayments. Commercial mortgages and some forms of bridging, development and buy to let finance are not regulated by the financial conduct authority.