How to Get a Commercial Mortgage in the UK: A Complete Guide

A commercial mortgage is one of the most powerful tools a UK business owner has for buying premises, refinancing an existing property, or investing in commercial real estate. But the process is very different from a residential mortgage, and the terms you are offered can vary enormously between lenders. This guide breaks down how commercial mortgages work and how to give yourself the best chance of approval.

What is a commercial mortgage?

A commercial mortgage is a loan secured against property used for business purposes: offices, retail units, warehouses, industrial space, or investment property such as buy to let portfolios and mixed use schemes. Terms typically run from 5 to 25 years, and lending is usually offered on either an owner occupier basis, where you trade from the property, or an investment basis, where you let it out to tenants.

The difference between those two bases runs through everything else. An owner occupier mortgage is really an assessment of your business. An investment mortgage is an assessment of the rent and the tenant. Knowing which one you are applying for tells you what the lender will actually be looking at.

How much can you borrow?

Most lenders will advance 60 to 75% of the property value, meaning you will usually need a deposit of 25 to 40%. Owner occupied premises sometimes attract higher loan to value ratios than pure investment deals. The exact figure depends on the strength of your business, the quality of the property, and the rental income or trading profit available to service the debt.

Lenders normally work from the lower of the purchase price and the valuation, so a property bought below market value does not automatically mean a smaller deposit. Where the purchase price is under value for a genuine reason, some lenders will consider the valuation instead, but that needs raising early rather than at offer stage.

What do lenders look at?

• Affordability. For owner occupiers, your trading profits with the rent you will no longer pay added back. For investments, the rental income and its coverage of the mortgage payment.
• The property. Its condition, location, use class, and marketability if the lender ever had to sell it.
• Your track record. Business accounts, experience in the sector, and credit history.
• Deposit and source of funds. How much you are contributing and where it comes from.
• Existing borrowing. Other facilities, and whether the business is already stretched.
• The lease, on investment purchases. The unexpired term, the tenant's covenant strength and any break clauses.

What you will need to provide

• Two to three years of filed accounts, plus up to date management figures
• Six to twelve months of business bank statements
• Details of the property, including tenancy agreements on an investment purchase
• Evidence of the deposit and its source
• Identification and address verification for all directors and shareholders
• A short business plan or forecast where the purchase changes how the business trades

Fixed or variable rates?

Commercial mortgage rates are usually priced as a margin above a reference rate, and many lenders offer a fixed rate period, commonly 2 to 5 years, for certainty, after which the loan reverts to a variable rate. Fixed rates protect you from rate rises. Variable rates can be cheaper when the base rate is falling. The right choice depends on your cash flow tolerance and how long you plan to hold the property.

Check the early repayment charge on any fixed rate. If there is a realistic chance you will sell or refinance within the fixed period, a slightly higher rate with a shorter tie in is often the cheaper option overall.

The typical process

1. Agreement in principle based on your figures and the property.
2. Full application with accounts, bank statements and business plan.
3. Valuation instructed by the lender.
4. Formal offer, then legal work through solicitors.
5. Completion and drawdown of funds.

From application to completion, a straightforward case often takes 6 to 12 weeks. Complex properties or leaseholds can take longer. The two stages that most often cause delay are the valuation, where the surveyor's availability is outside everyone's control, and the legal work, where using a solicitor experienced in commercial property makes a real difference.

What it costs beyond the rate

Budget for an arrangement fee, commonly 1 to 2% of the loan, a valuation fee, legal fees on both your side and the lender's, and usually a broker fee. On larger or more complex cases there may also be a commitment fee taken when terms are issued. None of these are unusual, but together they are a meaningful sum, so they belong in your calculation from the start rather than as a surprise at offer stage.

Common reasons applications are declined

• The property is hard to let or sell if the lender had to recover it
• Trading profits do not cover the payment once existing commitments are counted
• Accounts are out of date and no management figures are available
• The deposit cannot be evidenced, or comes from a source the lender will not accept
• A short remaining lease on the tenancy, on an investment purchase
• Undisclosed HMRC arrears or adverse credit that surfaces during underwriting

Most of these are fixable if they are dealt with before an application rather than during one. A decline is recorded, and a run of them makes each subsequent lender harder to convince.

How we help

The commercial mortgage market is fragmented, and high street banks are only part of the picture. A specialist who knows which of the 300+ UK lenders will look favourably on your sector, property type and circumstances can structure the application for approval rather than a cold submission that risks a decline. At Sadi's Commercial Finance, founded by a former banker, we place deals with the right funder from the start.

Frequently asked questions

How much deposit do I need for a commercial mortgage?

Typically 25 to 40% of the property value, since most lenders advance 60 to 75%. Equity in another property you own can often stand in place of cash.

Can I get a commercial mortgage with only two years of accounts?

Often yes, particularly with up to date management figures alongside them. Fewer than two years is harder but not impossible where the deposit is strong or you have clear experience in the trade.

Can I buy the premises I currently rent?

Yes, and it is one of the strongest cases to present. You have a trading record at the address, and the rent you have been paying is added back when affordability is assessed.

Interest only or capital repayment?

Owner occupiers usually take capital repayment so the debt reduces and the property is owned outright at the end. Interest only is more common on investment purchases where the plan is to refinance or sell.

How long does a commercial mortgage take?

A straightforward case usually takes 6 to 12 weeks from application to completion. Where a purchase must complete faster, bridging finance followed by a refinance is the usual route.

Can I get a mortgage on a shop with flats above?

Yes. Mixed use and semi commercial property is financed routinely, though the split between commercial and residential value affects which lenders will consider it and on what terms.

Do commercial mortgages have early repayment charges?

Fixed rate products usually do, and they can be substantial. Variable products are often more flexible. Check this before committing if you may sell or refinance within the term.

Are commercial mortgages regulated?

Most are not regulated by the Financial Conduct Authority, since the property is used for business rather than as the borrower's home. That gives more flexibility, but it also means lender choice and clear advice matter more.

Thinking about a commercial mortgage? See our commercial property finance service or speak to a specialist for a no obligation conversation about your options. You may also want to read about commercial mortgages for retailers and bridging loans.