Business premises, secure land for development venues, expand your portfolio
A commercial mortgage can be used to buy or refinance lad or property intended for commercial use
More often than not, a commercial mortgage will be higher value than a usual residential mortgage and can be used to:
- Buy business premises
- Secure land for development ventures
- Expand an owner occupied business
- Expand your buy to let portfolio
- Raise capital on commercial premises you already own
How does a Commercial Mortgage Work?
Many people opt for terms up to 25 years but terms can range from three – 40 years. If you’re looking for something that is less than three years, a bridging loan is more commonly used.
Just like a residential mortgage, you will need a deposit but it’s also possible to use another property you own as security if there is enough equity.
If you go down the route of getting an interest only commercial mortgage, you will only need to pay the interest each month and at the end of the term, you will need to settle the remaining balance.
However, if you go down the route of a variable commercial mortgage, you will make mortgage repayments each month which will go towards the interest rate and the mortgage balance – at the end of your term, as long as you don’t miss any payments, you will have paid off the full balance.
Commercial Lending Criteria
To get approval for any mortgage, you will need to meet the lender’s criteria and affordability requirements. Lenders will assess your application based on:
- Deposit size
- The applicant/business’ credit rating
- The viability of the investment
Types of commercial properties:
- Hospitality and Leisure: pubs, clubs, restaurants, hotels, gyms etc.
- Semi Commercial Properties: Offices and shops with flats above
- Shops and retail units
- Industrial properties: factories, warehouses, storage facilities etc
- Care homes, nursing homes and hospices
- Professional properties: Doctor’s surgeries, private schools, vets
- Agricultural: Land, buildings, barns
Rates will vary between lenders as one may specialise in a specific sector and some may prefer a certain property type over others.
This is when using a mortgage broker like ourselves can be incredibly helpful as they will know which lenders are more likely to approve of your application and have a good understanding of what lender prefers what risk.
What are the types of commercial mortgages?
Commercial mortgages are split into two types:
- Owner occupied mortgages – You’ve purchased a property that will be used as a trading premises for your company
- Commercial Investment Mortgage – You’re investing in a commercial property that you plan to let out
What documents do you need for a Commercial Mortgage?
- Personal / Business bank account statements from the last three months
- Business accounts for the last three years
- Proof of Identity such as passport or driving license as well as proof of address
- Lease/tenancy agreements for your business premises if you currently have one
- If you’re a limited business, you will need debentures and personal guarantees from the company directors
Not every lender will require all the above documents but on the flip side of things, some lenders may request further information. If you can gather all the documents listed in preparation, it can help your application process proceed smoothly.
Do you pay stamp duty on Commercial Properties?
You pay Stamp Duty Land Tax on increasing portions of the property price when you pay £150,000 or more for non residential or mixed land or property.
Non residential properties include:
- Commercial properties such as shops and offices
- Properties that aren’t suitable to be lived in
- Agricultural land that isn’t part of a working farm or used for agricultural purposes
- Land or property that is not part of a dwelling’s gardens or grounds
- If you’re purchasing 6 or more residential properties in one single transaction.
You can work out how much Stamp Duty Land Tax using the HMRC’s calculator.