Uk Commercial Mortgages

Commercial mortgage types

Generally, there's two types of commercial mortgages offered by banks, financial institutions or finance specialist companies:

  • 'owner-occupier commercial mortgage' where you borrow money to buy the business property and/or land as for business operations
  • 'commercial mortgage' for investment purposes where you borrow money to buy the property/land to rent out.

Commercial mortgages are more complex with more variables than residential mortgages. This makes for a less competitive market. But a range of banks and other financial institutions offer commercial mortgages.

Two main types of commercial mortgage repayments

  • a 'capital repayment mortgage' is one you pay back part of the capital each month plus the interest
  • an 'interest-only mortgage' is one you back only the interest each month. You pay back the capital through a separate arrangement using insurance, asset sales or investment options.

There's a number of other ways you can repay your commercial mortgage and you should take independent financial advice about this.

What do I need to do before I go to mortgage lender?

Typically you have to give 20-30% of property/land value as a deposit. However, there are 100% commercial mortages if it is difficult to raise this amount.

You will need to:

  • confirm that you can make regular mortgage payments including showing your profit and loss projection for the future financial year
    • banks may request the following: if you are established business, you may need to show trading accounts and if start-up, your business plan and profit projections for your business
    • non-bank lenders may be more lenient but their loan agreements can be more costly.
  • give property/land details including selling price
  • an up to date property/land valuation
  • employment history or outlines for each business partner or director including asset and liability details for each person.

What if I have a poor credit history? You may still be able to apply for a commercial mortgage. You need to prove that:

  • you have addressed any credit related issues
  • you can make regular loan repayments and
  • your business is in good shape.