With buy to let margins getting squeezed from all angles, more and more investors are eyeing up commercial property. And who can blame them? With fewer tax headaches and a stamp duty cap of 5% over £200,000, it’s looking pretty tempting. But before you dive in, let’s break down what you really need to know about investing in commercial property.
It's not just any old bricks and mortar
Unlike snapping up a fixer-upper, giving it a quick facelift, and renting it out for easy cash, commercial property requires a bit more brainpower. Here’s what to think about before signing on the dotted line:
Understand the Asset Class
Your choice of commercial property isn’t just about what looks good on Rightmove. It affects:
Key Considerations
Location, location, location. Yes, it matters. Think about:
Proximity to transport links (because no one wants to trek miles to work)
Parking availability
The local business scene – is the area thriving, or are the ‘to let’ signs gathering dust?
If you were a tenant, would you actually want to rent this place?
Getting a Commercial Mortgage
How much cash do you need upfront?
Spoiler: It’s more than for a residential buy to let. Expect to put down at least 25% - though it depends on the type of property. For example…
Lenders may also be kinder if you have experience in commercial property investment. If it’s your first rodeo expect to jump through a few more hoops.
What do lenders want to know?
Commercial investment mortgages (AKA, buying to rent out)
Lenders will be eyeing up:
Whether the property has tenants (because empty properties = risk).
How much rent they are paying.
The length of the lease (the longer, the better).
Whether the tenants actually pay the rent on time.
If the place is sitting empty, getting a commercial investment mortgage may be trickier.
Owner-occupied commercial mortgages (AKA, buying to run your own business)
You’ll usually need:
At least two years’ worth of finalised accounts.
Up-to-date management accounts.
Recent personal and business bank statements.
A statement of assets, liabilities, income and expenditure (SALIE)
If you’re a start-up, brace yourself. Securing an owner-occupied commercial mortgage with no track record will be tough. Not impossible, just tough. And probably expensive.
Shop around before you commit
Commercial mortgage interest rates vary wildly, so don’t just go with the first lender that pops up. Comparing rates from different lenders can save you a fortune in the long run. Luckily, you’re on a specialist property finance comparison site, and we make this a breeze – and if you need some serious negotiating power, our optimiser service can do the heavy lifting. You can also calculate commercial mortgage repayments to see what fits your budget before diving in.
The Lending Landscape – What’s Hot and What’s Not?
Some types of commercial properties are easier to finance than others. Right now:
Warehouses – lenders love them, thanks to the online shopping boom.
Pubs, restaurants, and bars? Risky business, but a well-located gem could be worth it.
Size Matters
Bigger loans often come with better commercial mortgage rates. But if you’re after a small loan, high-street banks may be your best bet – just be prepared for some strict criteria.
Commercial mortgage lending rates can vary depending on the size of the loan and the lender’s appetite for risk, so shopping around is crucial.
Know Your Responsibilities as a Commercial Landlord
Buying the property is just step one. If you’re renting it out, you’ll need to stay on top of:
Gas, fire, and electrical safety
Asbestos compliance (yes, this is still a thing!)
General maintenance and repairs
Minimum energy efficiency standards
Commercial property insurance (essential, not optional!)
Fail to meet these responsibilities, and you could be looking at hefty fines – or even jail time.
Final Thoughts – Is It Worth It?
Absolutely – if you do your homework. Commercial property can be a solid investment, but it’s not as simple as a buy to let. The key is to know what you’re getting into, compare your commercial mortgage options, and get expert advice.
With so many commercial mortgage deals on the market, it’s essential to do your research and find the right one that suits your investment strategy. Different commercial mortgage rates apply depending on factors like loan amount, property type, and your financial background, so make sure you weigh up all your options.
Next Steps
If you’re serious about commercial property investment, talk to one of Propp’s commercial property finance experts. We’ll help you navigate the ins and outs, find you the best commercial mortgage loan rates, and make sure unexpected costs do not catch you out.
Chloe Rule
