Unlike residential mortgages, commercial mortgages fund business premises and investment properties such as offices, retail units, warehouses, and mixed-use buildings. The lending is bespoke: underwriters assess the business, property, cash flow, and borrower experience.
Types of commercial mortgages
• Owner-occupied: for businesses buying premises they trade from.
• Commercial investment: for investors purchasing property to let to businesses.
• Semi-commercial: mixed-use, e.g., a shop with flats above.
How they work
• Deposits typically 25–40%.
• Rates usually higher than residential; often variable or linked to base rate.
• Terms 3–25 years; repayment or interest-only depending on case.
• Underwriting considers accounts, projections, rent rolls, lease terms, property type/condition, and borrower track record.
Example
A firm purchases offices worth £500,000 with a £150,000 deposit (30%) and a £350,000 20-year repayment mortgage at 6%. Payments are ~£2,510/month. The firm builds equity instead of paying rent to a landlord.
Benefits
• Build an asset and hedge against rising commercial rents.
• Tailored structures for cash-flow (e.g., interest-only periods).
• Potential tax efficiency (interest often deductible).
• Capital growth potential in strong locations.
Risks & fees
• Larger deposits tie up capital; rates/fees are higher than residential.
• Market risk: commercial values can be cyclical.
• Covenant risk: tenant defaults affect investment cases.
• Costs: arrangement, valuation, legal, and sometimes lender monitoring fees.
Who can apply?
Established businesses, SPVs/limited companies, partnerships, and investors. Start-ups may be considered with strong plans/security.
Alternatives
Business loans for smaller needs; bridging loans for speed; development finance for build/refurb projects; leasing the premises instead of buying.
Why Everest Mortgages?
We access specialist commercial lenders, advise on owner-occupied vs investment routes, structure debt for tax and cash-flow efficiency, and present robust applications to underwriting.
Final thoughts
Commercial mortgages can turn occupancy costs into long-term investment—yet they are complex and case-specific. Expert brokerage is key to securing the right terms.
Thinking of buying or refinancing premises? Contact Everest Mortgages at Everest-Mortgages.co.uk for specialist commercial finance advice.
