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From pricing and property types to varying lender criteria, here's everything you need to know as a first-time commercial property investor.

What is a commercial mortgage?

A commercial mortgage is a loan secured on a property that is not residential such as office buildings, shopping or industrial complexes. With higher yields, a lower stamp duty threshold and more flexibility with tenants… it’s no surprise commercial and mixed use properties are becoming increasingly popular with residential landlords.

So, if you, like many, are looking to purchase your first commercial investment property there are a few things you should be aware of if you want to increase your chance of being accepted for finance.


Will you qualify for a commercial mortgage?

Commercial lenders prefer borrowers to have some sort of property investment experience because operating mixed-use or commercial properties requires a greater level of understanding. To increase your chances of receiving finance you will need to:

  • Have a deposit of 20% - 30%
  • Be a homeowner
  • Have owned a couple of buy to let properties for a minimum of 24 months
  • Have cash in the bank in the form of savings
  • Provide evidence of your income, whether it’s from a salary, self-employment or rent

Don’t panic if you don’t meet all the criteria mentioned above; there are still options out there, just bear in mind that pricing is likely to be higher.


What type of commercial property is acceptable?

If this is your first commercial investment, there will be more options available to you if you are looking to purchase a standard shop, or a shop with a flat above. As soon as you start looking at the more complex commercial property your finance choices will be restricted.

**FYI - we have noticed an increase in lenders declining applications for take-aways and non-chain restaurants with and without flats above.**


Do you need to have tenants in situ?

Lenders prefer it when a commercial unit is already tenanted, preferably on a standard FRI lease with at least two years plus remaining. Saying this, there are options for vacant units – in these cases, commercial mortgage lenders usually offer up to 75% LTV on an 180-day valuation, i.e. the valuer’s opinion of what the sale price would be if the property were to be sold within 180 days).


How much will a commercial mortgage cost you?

Unlike buy to let mortgages there are no standard rates, commercial mortgages are priced individually to meet the strength of the proposal. The commercial mortgage rate you are likely to receive is dependent on your experience, industry sector, the property itself, the quality of the tenant and the length of the lease.

The high-street lenders are currently offering somewhere between 3.25-4.25% over base rate (Bank Rate currently 0.75%, variable) on capital and mortgage repayment terms only. Also expect to pay 1-2% in arrangement fees, although interestingly, many no longer insist that you also do your business banking with them.

If you are looking for interest only terms, the specialist lenders are a better bet and are offering up to 10 years’ interest only, with pricing in the region of 3.99-5.79% over base rate and fees of around 1-2%.


Chat to an expert 

For more information on commercial investments and property finance, call to speak with one of our experts on 0345 345 6788 or submit an enquiry here

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