Commercial buy-to-let mortgages

When a lot of people think of buy-to-let mortgages, they think of landlords buying a property and renting it out to residential tenants. They think of people buying a second property as an investment, and renting it out to make money in the meantime. But, what about if you’re more interested in the commercial side of things?

If you’re looking to invest in commercial property and earn rental income from business tenants, you will need a commercial mortgage, and a commercial buy-to-let mortgage could be just what you’re looking for. Whether it’s offices, shops, warehouses or premises with multiple uses that you’re looking for, this type of commercial mortgage can help you to expand your investment portfolio.

At Everest Mortgages, we understand that stepping into the commercial property market can feel like a big leap. It’s not always straightforward, and it certainly isn’t as simple as taking out a standard mortgage, browsing Rightmove and putting an offer in on a house. But, with the right commercial buy-to-let mortgage and Everest Mortgages by your side, buying a commercial property is a lot less scary.

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What is a commercial buy-to-let mortgage?

A commercial buy-to-let mortgage is a type of mortgage that’s used to purchase a non-residential property, with the intention of renting it out to other businesses. You can then use the rental income generated from business tenants – for example, retailers or businesses that use an office – to cover the mortgage repayments, and ideally generate a profit.

These commercial mortgages are typically taken out by limited companies or experienced investors, rather than individuals, and the property itself acts as security for the loan. When deciding whether to approve your commercial mortgage application, lenders will assess both your business’ finances and the potential rental income of the building, to give them an insight into how risky the mortgage is likely to be.

How do commercial buy-to-let mortgages work?

When you apply for a commercial mortgage, lenders will assess several factors to determine eligibility, including:

The property’s rental potential, and whether the rent comfortably covers the mortgage.
Your business or investment history, and if you have experience as a commercial landlord.
The size of your deposit and any equity you have to put towards the mortgage.
If you’re borrowing through a limited company, they’ll want to know about the company structure and accounts .
Both your personal and business credit history and affordability.

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Standard vs commercial buy-to-let mortgages

Buy-to-let mortgages aren’t reserved for businesses, and many individuals use them to invest in residential properties which they will then rent out to tenants. But, there are some big differences between the two.

Property type

Commercial buy-to-let mortgages are used for non-residential buildings, such as offices, shops, warehouses and industrial units. Standard buy-to-let mortgages are for residential properties rented by private tenants.

Borrower type

Commercial mortgages are usually taken out by limited companies or businesses, while residential buy-to-let mortgages are usually taken out by individual landlords with smaller portfolios.

Loan-to-value (LTV) ratio

Commercial lenders usually offer a lower LTV than residential lenders, meaning you’ll need a larger deposit.

Interest rates and fees

You should expect higher rates and fees for commercial loans, which reflects the higher perceived risk and complexity for the lender.

Eligibility criteria

Commercial lenders tend to focus more on your business performance, rental projections and investment experience, whereas residential lenders are usually more interested in your personal income and credit history.

Reasons to choose a commercial buy-to-let mortgage

There are a whole host of commercial mortgages to choose from, so why should you choose a commercial buy-to-let mortgage?

Commercial buy-to-let mortgages are ideal if you’re expanding your investment portfolio into commercial property.
They’re an effective way of securing premises for your own business, whilst renting out part of it to offset the cost.
Commercial buy-to-let mortgages can provide an income stream outside of residential lettings, giving you a more diverse portfolio.
With a commercial buy-to-let mortgage, you can take advantage of long-term capital growth in the commercial property market.

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Benefits of a commercial buy-to-let mortgage

Long-term investment potential

Commercial mortgages can run for many, many years, making them ideal if you want to build equity eventually, and enjoy steady rental returns in the meantime.

Limited company tax efficiency

Owning commercial properties as a limited company can be more tax-efficient than owning them as an individual. Though you’ll typically have to pay corporation tax on profits, this is usually lower than paying personal tax as an individual.

Limited liability protection

A limited company structure separates your personal and business finances, giving you limited liability protection. This means your personal assets are protected if your property business experiences financial difficulties. You can take out a commercial buy-to-let mortgage, knowing the loan is linked to your business, and your personal assets aren’t at risk.

Flexible lending options

Commercial buy-to-let mortgages can be tailored around your portfolio and goals, allowing for portfolio lending, interest-only periods or repayment holidays. Though this flexibility depends on the lender you choose, working with Everest Mortgages ensures you’ll find a commercial mortgage that ticks every box.

Whether you’re looking to expand your investment portfolio, diversify into office or retail spaces, or secure long-term rental income from business tenants, a commercial buy-to-let mortgage is likely to be exactly what you’re looking for. At Everest Mortgages, we’ll help you to find the right

lender, the right deal and the right mortgage strategy for your exciting commercial property venture.

FAQs

Frequently asked questions

How much of a deposit do I need for a commercial buy-to-let mortgage?

This differs from lender to lender, depending on the amount you want to borrow and the property you’re planning to buy. But, typically, you’ll need to have between 25% and 30% of the property’s value to use as a deposit.

What types of property can I buy with a commercial buy-to-let mortgage?

You can buy a long list of properties with a commercial buy-to-let mortgage, including shops, offices, industrial units, warehouses and other non-residential buildings. As long as the property generates rental income from business tenants, you can usually use a commercial buy-to-let mortgage.

Are commercial buy-to-let mortgage rates higher?

Yes, usually. Interest rates tend to be higher than they are for residential buy-to-let mortgages. This is because lenders view commercial tenants and leases as slightly riskier.

Do I need experience as a landlord?

No, not always, you can get a commercial buy-to-let mortgage without any experience as a landlord. However, lenders usually prefer applicants who have some previous property investment experience.

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