Commercial mortgages

Last updated on 10 August 2023

Are you considering applying for commercial mortgages but don’t know where to start? Well, you’ve come to the right place.

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For business owners, understanding how to finance the growth of their company is crucial for long-term success. One way businesses have traditionally funded these expansion plans is through commercial mortgages offered in the UK.

But what do you need to know about them? In this article, we’ll take a look at what UK commercial mortgages are, and what to consider when applying for one.

Best commercial mortgage lenders UK

Mortgage lenderMax. Loan to Value ratioMax. termMax. lending

ABC Finance

80%30 yearsNot stated

Aldermore

75%20 years£25 million

Assetz Capital

75%20 years£10 million

Barclays

Not stated25 yearsNot stated

Clydesdale Bank

70%20 yearsNot stated

Cambridge & Counties Bank

70%25 years£15 million

Cumberland Building Society

75%30 years£2 million

Cynergy Bank

70%10 yearsNot stated

HSBC

75%30 yearsNo maximum

ICICI Bank UK

60%7 years£25 million

InterBay

80%30 yearsNo maximum

Landbay

80%Not stated£2 million

Lloyds Bank

70%25 yearsNot stated

Mansfield Building Society

75%Not statedNot stated

NatWest

Not stated25 years£10 million fixed, no limit on variable

Paragon Bank

75%Not stated£1 million or £10 million for portfolios

Proplend

75%5 years£5 million

Rangewell

80%20 yearsNo maximum

Redwood Bank

70%25 years£5 million

Royal Bank of Scotland

Not stated25 years£10 million fixed, no limit on variable

Satellite Finance

75%30 years£40 million

State Bank of India (UK)

70%Not statedNot stated

Together Money

65%30 years£250,000

TSB

70%25 yearsNot stated

West One Loans

75%25 years£1.5 million

Yorkshire Bank

70%20 yearsNot stated
Best commercial mortgage lenders UK

What is a commercial mortgage?

A commercial mortgage is a loan used to purchase, renovate, or refinance a commercial property. Unlike residential mortgages, which are usually secured by the home itself, commercial mortgages are typically obtained through banks and other lenders and secured by the underlying real estate property.

Commercial mortgages typically carry higher interest rates than residential mortgages but also come with more flexible repayment options.

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Additionally, commercial mortgages may also require the borrower to provide additional collateral or security in order to secure the loan. Commercial mortgages are often used by businesses in need of financing for business expansion or renovation projects.

They can be used to purchase a new property, expand existing properties, buy out another company’s leasehold interest, refinance existing debt, or purchase equipment.

How does a commercial mortgage work?

The applicant borrows a lump sum of money to pay for a commercial premises or renovation, and then repays the debt to the lender of a period of time, plus interest.

A commercial mortgage is typically a loan that is secured by a lien on real property. This means that the lender has the ability to seize and sell the property if the borrower defaults on payments.

The loan is usually for a fixed amount of money and has a fixed interest rate and repayment term. The lender will also require certain documents from the borrower to prove their ability to repay the loan, such as income statements, balance sheets and other financial records.

The repayment schedule of a commercial mortgage is usually determined by the lender. It may include a balloon payment at the end of the loan term, where all remaining debt must be paid off in one lump sum.

The borrower will also need to make monthly payments on the loan each month and pay interest as agreed upon by both parties.

Commercial mortgage rates explained

Commercial mortgage rates vary based on the type of loan, the size and terms of the loan, and the creditworthiness of the borrower. Generally speaking, commercial mortgages have higher interest rates than residential mortgages, but this is not always true. It depends on several factors including market conditions and risk profile.

Interest rates may be fixed or adjustable, and the borrower may be able to negotiate a lower rate based on their creditworthiness. Additionally, borrowers may also be able to lock in an interest rate for a certain period of time or choose from a range of adjustable rates.

The length of a commercial mortgage is typically between five and twenty-five years, although some lenders offer longer terms. The long-term nature of commercial mortgages makes them a good option for borrowers who need long-term financing or those who are unable to secure a traditional mortgage loan.

How to get a commercial mortgage?

In order to obtain a commercial mortgage, borrowers usually need to have strong credit and a well-thought out business plan. Lenders will also require financial statements and other documents that prove the borrower’s ability to repay the loan.

How to get a commercial mortgage

  1. Gather documents

    Lenders will need to see financial records, personal tax returns, and other documents that show your business’s ability to repay the loan.

  2. Create a business plan

    This document should include information about your company, its products or services, marketing strategies, and how you plan to use the money.

  3. Find a lender

    Research lenders to determine which one is best for your needs and what type of loan you qualify for. Get professional advice if needed.

  4. Check interest rates

    Compare interest rates from multiple lenders to ensure you are getting the best deal.

  5. Calculate monthly payments

    Estimate how much you will need to pay each month on the loan.

  6. Apply for a loan

    Submit your documents, business plan, and application for a commercial mortgage.

  7. Review the terms of the loan

    Make sure that all aspects of the loan are agreeable before signing any documents or accepting any funds.

  8. Secure collateral

    Many lenders require some form of collateral in order to secure the loan.

  9. Sign documents

    You and your lender will need to sign all necessary documents in order for the loan to be finalised.

  10. Make payments

    Once you have signed the documents, make sure that you keep up with all monthly payments in order to avoid defaulting on the loan.

It is important for potential borrowers to shop around for lenders, as different banks offer different terms and rates. Additionally, borrowers should make sure to read through the terms and conditions of any commercial loan before signing it, in order to avoid any unwelcome surprises.

Overall, obtaining a commercial mortgage can be a complicated process but with the right planning and preparation it can be done successfully.

How much deposit do I need for a commercial mortgage?

The amount of deposit required for a commercial mortgage depends on the lender and type of loan. Generally, lenders require a minimum down payment of 25 to 30 percent for most commercial mortgages.

However, some lenders may require higher deposits depending on the risk associated with the loan.

Other factors that may influence the deposit requirement include creditworthiness, income level, and the type of property being purchased.

It’s important to keep in mind that a larger deposit will typically result in a lower interest rate and more favorable loan terms, while a smaller deposit may result in higher interest rates or less favorable loan terms.

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