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Applying for a Large Commercial Mortgage

Access an in-depth guide to large commercial mortgages, eligibility criteria and finding a suitable lender.

Almas Uddin
Almas Uddin

Founder and Mortgage Advisor

Almas Uddin2023-05-09
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Applying for a Large Commercial Mortgage

Thousands of businesses require commercial mortgages to purchase trading premises, storefronts, warehouses, workshops and factories.

Larger premises inevitably command a higher purchase price, meaning the necessary mortgage value is greater than some lenders can offer.

There are numerous factors to consider when applying for a large commercial mortgage, such as deposit values, security, repayment costs and interest charges. It is also essential to get a good deal since repaying a mortgage is often the largest expense a business needs to budget for.

The Revolution Finance Brokers team shares insights about how UK commercial mortgages work, the criteria lenders will apply, and the maximum amount you are likely to be able to borrow.

What Size of Mortgage Counts as a Large Commercial Mortgage?

It isn't easy to quantify a precise value above which a commercial mortgage is categorised as large since this varies between lenders.

Some mortgage providers, primarily those specialising in the commercial sector, offer unlimited mortgages (depending on security and business revenue) but will assess each application on a case-by-case basis, without an upper borrowing limit.

The average value for a commercial mortgage is around £400,000, and lenders generally consider an application worth £1 million or above a large amount.

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How Do Lenders Evaluate Affordability for Large Commercial Mortgages?

Affordability assessments are part and parcel of applying for any mortgage but are a key factor in large commercial mortgages, given the higher values involved.

In essence, a lender needs to review the applicant's income and outgoings to decide whether they believe they can keep up with the repayments.

Again, the policies applied will differ between lenders. Some apply strict affordability assessments before they offer a large commercial mortgage.

The calculations are the same regardless of the size of the commercial mortgage. Still, there is usually less flexibility if the lending amount is very high since the risk to the lender is greater. They will need to be confident there is minimal chance of the business defaulting or closing down.

Large commercial mortgage lenders will need to assess the operating figures for the last three years, looking at profits before accounting for depreciation, interest and tax (also known as the EBITDA figure).

Loss-making companies may find it challenging to secure a large commercial mortgage because operating losses indicate an unstable income.

How Useful Are Large Commercial Mortgage Calculators?

Commercial lending isn't regulated in the same way as residential mortgages. Lenders can be more flexible in applying borrowing rules or criteria and considering applications that fall outside the norm.

Every business is different, so there aren't any hard and fast ways to calculate whether you'd be approved for a larger mortgage or how much it would cost.

Online calculators are useful as a rough indicator but shouldn't ever be relied upon to provide definitive guidance.

What Deposit Do I Need For a Large Commercial Mortgage?

Mortgage lenders usually require a larger deposit for a commercial mortgage since there is a greater risk that a business client will become insolvent than a residential borrower will become bankrupt.

Deposits are typically between 20% and 40%, but this depends on the trading history of the company, the nature of the property, and the value of the mortgage.

There is also a contrast between owner-occupier applicants (where the business wants to buy a property to trade from) and commercial buy-to-let mortgages (where the investor rents the premises out to tenants).

Loan to Value ratios tend to go up to 75% as a maximum for commercial investment mortgages and 80% for owner-occupier mortgages.

If you need a commercial mortgage worth £1 million, you'll need to pay a deposit of £200,000 to £400,000.

Do Lenders Offer Large Commercial Mortgages at 100% Loan to Value?

Finding a commercial mortgage without a deposit is rare but sometimes possible, depending on the scenario and whether the company can provide extra security to offset the increased risk.

If the business already owns other properties or higher-value assets and offers them as collateral against the loan, they might be able to negotiate terms to secure a 100% LTV commercial mortgage.

How Can Businesses Secure Competitive Rates on a Large Commercial Mortgage?

Mortgage interest rates are higher on commercial properties than on residential borrowing. Since lenders have discretion about what they offer each applicant, you are unlikely to find rate tables or other interest rate information published online.

Rather, the lender will assess the business applicant and the loan risk and decide what interest rate to charge.

The best way to ensure your commercial mortgage rates are competitive is to work with an experienced broker who can help compile a strong application, identify lenders best suited to your requirements, and negotiate terms.

How Expensive Are Large Commercial Mortgages?

Most businesses find a slight economy of scale in analysing the overall costs of a large mortgage against a lower value, provided the deposit paid brings the Loan to Value down to a reasonable level.

As we have explained, commercial borrowing is more costly than residential, but lenders may offer a comparably low-interest rate on a low-risk larger mortgage.

Submitting a thorough application with the requisite supporting information and full trading figures can help you achieve the lowest possible rates and charges.

What Are the Eligibility Requirements for a Large Commercial Mortgage?

Eligibility rules vary between lenders and are tailored to each applicant and the amount they wish to borrow, without any universal criteria that will apply to every case.

As an idea, the below criteria tend to be standard requirements, but the exact terms will depend on the lender you choose to apply to:

  • Credit rating: Adverse credit can make it trickier to qualify for the lowest rates, but a less-than-perfect credit report doesn't necessarily mean that a business won't be able to find a mortgage, particularly if they use a bad credit lender.
  • Trading history: A longer trading history with years of experience will be easier for a lender to approve because there is less chance of the business failing. The minimum number of years trading will be greater for companies in sectors considered a higher risk.
  • Deposit: A larger deposit acts as security and can make mortgage approval more likely if other aspects of the application present a higher perceived risk.
  • Business forecasts: Commercial mortgage applicants are often asked to provide a business plan or projections to indicate expected profits or revenue over the coming year. Investors looking to finance a commercial buy-to-let property must also provide income forecasts.

While these are general eligibility requirements, they won't always apply. For example, some large commercial mortgage lenders focus on startup financing or will be able to waive some of their conditions if the business can put up extra security.

What Are the Minimum and Maximum Commercial Mortgage Values?

Commercial mortgage lenders offer loans from £26,000 and above and often consider a mortgage valued at up to £100,000 the norm.

Interest rates may be lower if your mortgage value is more conservative, but the assessment process is pretty much the same as for a much larger mortgage.

What Is the Benefit of Working With a Broker to Find a Large Commercial Mortgage?

It is highly advisable to seek professional advice before moving forward with a large commercial mortgage application because identifying the right lender and negotiating terms can make a considerable impact on your overall costs.

A limited number of lenders can offer large commercial mortgages valued at over £1 million, and submitting an accurate and complete application can strengthen your case.

Revolution Finance Brokers is an independent, whole-of-market broker and can provide guidance from start to finish, recommending lenders and products we think are best suited to your needs.

Get in touch at your convenience if you would like assistance finding and applying for a large commercial mortgage of any value. Our business mortgage advisers will be happy to help.

Almas Uddin
Almas Uddin

Founder and Mortgage Advisor

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Frequently Asked
Questions

UK lenders have different policies and products that relate to large commercial mortgages. One might consider your application a medium-sized mortgage, whereas another might deem it a large value.

Usually, any business mortgage over £1 million is treated as a large commercial mortgage application.

Commercial mortgage lending is not regulated in the same way as residential lending. Mortgage providers are free to set their own eligibility rules about which companies or trading structures they are prepared to accept for a commercial mortgage.

They may also have thresholds for turnover, profitability or the number of years trading a business needs to have to qualify for a large commercial mortgage product.

However, there are no universal restrictions, and any business should be able to secure a commercial mortgage, including limited companies, partnerships and trusts.

If you are unsure whether your trading structure qualifies for the mortgage type you would like, please get in touch with Revolution Finance Brokers for further guidance.

Commercial lending costs more than residential lending because mortgage providers consider the risk greater.

Much depends on the deposit you have available, the length of the mortgage term, and the security you can offer to offset the lender's risk.

Larger commercial borrowing is likely to cost more than a smaller mortgage. Still, if you have a strong trading history, healthy financials and a larger amount of security to offer, you should be able to negotiate competitive rates.

While residential mortgages generally run for around 25 years, commercial mortgages are flexible and might have a much shorter or longer repayment term.

You can apply for a large commercial mortgage with a five-year repayment period or extend this to up to 30 years with most lenders.

The standard deposit required for a large commercial mortgage varies between 20% and 40%. If your application carries other risk factors, such as having a shorter trading history, your deposit will likely need to be at the higher end of the scale.

Most UK commercial mortgage lenders require a deposit of 25% and above if you are purchasing a commercial building to let out and at least 20% if you want to buy a building to trade from.

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The content included in our articles, blogs, web pages and news publications is based on information accurate at the time of writing. Note that policies and criteria can change regularly throughout the UK mortgage lending market, and it remains essential to contact the consultation team to receive up to date guidance. The information included on the Revolution Brokers site is not bespoke to any circumstances or individual application scenarios and therefore is not intended to be used as financial advice. The content we share is designed to be informative and helpful but cannot be relied upon to provide individual advice relevant to your mortgage requirements. All Revolution team members are fully qualified, trained and experienced to provide mortgage advice of an independent nature.

We collaborate with lenders and providers who are regulated, authorised and registered with the Financial Conduct Authority (FCA). Should you require specific mortgage borrowing types, some products such as buy to let mortgages may not be FCA regulated. The Revolution team can provide further information about regulated and unregulated lending as required. Please remember that a mortgage is a debt which is secured against your home or property. Your home can be at risk of repossession if you do not keep up with the repayments or encounter any other difficulties in managing your mortgage borrowing responsibly. This also applies to any remortgage or home loan secured against your property, including equity release products.

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