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Commercial Mortgages

There are many different lenders and Commercial Mortgage products on the market which can be difficult to know which one best suits your needs. Going to a broker who is specialising in commercial mortgages can help you to find the product which meets your requirements the most closely. Call us now to discuss the options available to you.

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Choosing an optimal commercial mortgage isn't always straightforward. There are thousands of products on the market, and without like-for-like comparisons, how can you know:

  • Which lender will approve you without queries, and which will reject your commercial mortgage application?
  • Whether your quoted rates are competitive, or if you could get a better deal elsewhere?
  • If the terms you're seeing are the best fit for your business, or indeed if another financing solution altogether would be a better solution!

Revolution Brokers have years of experience in brokering complex, non-standard and high-value commercial mortgages.

Here we'll explain some of the basics to help you understand the essential factors to choosing the right commercial mortgage. For tailored advice and bespoke application support, call us on 0330 304 3040 or email the team at info@revolutionbrokers.co.uk.

The following topics are covered below:

How Do Commercial Mortgages Work?

The Basics of a Business Premises Mortgage

Can I Use a Commercial Mortgage Broker for Any Property Investment?

What is the Commercial Mortgages UK Application Process?

What to Consider For a Hotel Mortgage or Owner Occupied Property Mortgage

What are the Benefits of Taking Out Commercial Mortgages?

Do I Need Commercial Mortgage Advice?

Understanding the Fees

Benefits of Using a Commercial Mortgage Advisor

Loan Eligibility and Lending Criteria

How Do I Choose Commercial Mortgages UK?

Loan Eligibility and Lending Criteria

How Do I Choose Commercial Mortgages UK?

Can I Get a Fixed Rate Business Loan With Commercial Mortgage Advice?

Will a Commercial Mortgage Broker Improve my Approval Chances?

What Should I Look For in a Commercial Mortgage Advisor?

Cost Savings Through an Independent Commercial Mortgage Broker

How Do Commercial Mortgages Work?

A commercial mortgage is pretty similar to your regular residential mortgage but only available to businesses.

Of course, that's a loose description, and you might be a corporation, limited company, partnership or sole trader - and that trading style may dictate the right lender to apply to!

Businesses might apply for commercial mortgages to:

  • Purchase a new property, either a trading site or a rental investment.
  • Raise financing on a lower-cost basis than through a business loan.
  • Refinance other debts and consolidate their outgoings.

Loans tend to go up to about £50,000, whereas a commercial mortgage is secured against a property, so there isn't any fixed maximum value you can borrow.

Commercial mortgages are long-term borrowing products, but we can negotiate terms from three years up to 25. You can usually borrow up to 75% as a top limit of the value of the property you're buying or using as security.

The Basics of a Business Premises Mortgage

A business premises mortgage has some essential differences that set it apart from a regular mortgage:

  • The interest rate is higher as commercial mortgages are considered to be high-risk.
  • The interest rate on a business mortgage is better than on a business loan, as the lender holds security against the debt.

You can take out a commercial mortgage on any property purchase made through a business, whether that's as a rental investment or a premise you intend to trade from.

Any property you buy that isn't a residence and is intended for commercial use is eligible for a commercial mortgage - that could be an office, workshop, parcel of land, warehouse or combined trading premise.

Can I Use a Commercial Mortgage Broker for Any Property Investment?

Revolution works with many businesses, from first-time investors to large organisations looking to expand their property portfolios.

Our role is to work as an advocate for the business, ensuring that the commercial borrowing terms match your financial requirements and offer a safe, secure and competitive deal that will be more beneficial than anything on the open market.

Commercial mortgages for investment properties tend to max out at 65% of the value. In contrast, a commercial property mortgage for a trading premise can go around 10% higher, so the maximum you can borrow depends on the purpose of the loan.

What is the Commercial Mortgages UK Application Process?

You won't find published rates tables for commercial mortgages since every loan is assessed on a case-by-case basis.

Since commercial mortgages are unregulated, there isn't any standard basis against which a lender has to decide what to offer.

That means the application process is somewhat more involved, and the lender will need to see things like:

  • Property valuations
  • Trading information and financial accounts
  • Asset and liability statement for sole traders, or balance sheets for limited companies
  • Bank statements, tax returns and other documents to evidence the business turnover.
  • Proof of ID for directors and/or owners
  • Cash flow statements and projections
  • Business plans, usually for at least three years

The good news is that Revolution manages these reports daily and are always on hand to help compile a robust application, with all the supporting evidence to ensure the lender is in an excellent position to offer approval.

What to Consider For a Hotel Mortgage or Owner Occupied Property Mortgage

When deciding whether to apply for a business mortgage, make sure you can afford the repayments both now and in the future.

Some of the points you may want to factor in include:

  • A bad credit rating won't prevent you from being able to apply for a commercial mortgage. Bear in mind, however, that you're unlikely to qualify for the best rates and will probably be charged a much higher rate of interest to mitigate the risk the lenders believe they are taking.
  • Like regular mortgages, a business mortgage is a type of secured loan, which means there are severe consequences to falling behind. If you end up defaulting on your payments, there's an excellent chance you'll lose the property entirely.
  • It's common for commercial mortgages to require a large deposit with a much lower loan-to-value ratio (LTV). If you're stretching yourself financially to pay the deposit, make sure you have sufficient capacity left to meet the repayments.
  • If you find the deposit requirements challenging to meet, a broker may find you a lender willing to offer a higher LTV.
  • The longer you have been trading, the easier it may be to secure a business mortgage. If your business is relatively new, the lender may require personal guarantees, as you’ve not demonstrated sustained success.

What are the Benefits of Taking Out Commercial Mortgages?

There are a few reasons a commercial mortgage offers advantages over other types of pending:

  • Mortgage interest payments are tax-deductible.
  • The business capital increases as the property appreciates.
  • Businesses can opt to rent out a premise to boost their income.

If you aren't sure whether to purchase a property as a private individual or buy through your business, it's vital to weigh up the pros and cons before making any long-term financial decisions.

You can also contact Revolution for independent commercial mortgage advice if you're torn between different borrowing options and need a comparable like-for-like comparison.

Generally, commercial property mortgages carry lower interest rates than any other type of loan. A fixed-rate means you'll have better cash flow management with a stable monthly repayment cost.

Commercial mortgages are also advantageous if you're looking to realise capital growth over a more extended period, rather than purchasing a property outright and being liable for considerable capital gains taxes.

Owning a business premise is also more beneficial than renting since it means you'll have a tangible fixed asset in your books, usually while paying the same cost per month as you would to rent.

Do I Need Commercial Mortgage Advice?

Professional advice on a commercial mortgage is highly advisable.

There are many potential pitfalls to opting for a lender at random, and it's all but impossible to be confident you're minimising business expenses without an independent broker on your team.

You don't have to appoint a mortgage advisor, and there's no obligation to do so.

However, Revolution works with hundreds of businesses that save a considerable amount on their mortgage interest costs and enjoy bespoke repayment terms that align with their business plans.

As your commercial mortgage broker, we:

  • Compare all the business mortgage products and lenders on the market to select the most beneficial options to suit your company objectives.
  • Negotiate on your behalf, securing lower interest rates, more flexible terms, and mortgage fees that fit within your budget.
  • Assist with the application process. This support is vital if there are any complexities in your application, such as proving affordability if you've had a loss-making trading period.
  • Provide professional advice if we feel an alternative borrowing product would be more advantageous or offer lower overall costs than a conventional mortgage.

Commercial mortgages aren't FCA regulated, so it's even more crucial to work with a professional advisor than when taking out a residential mortgage.

Rates and arrangement fees are dramatically variable between lenders, so a commercial mortgage advisor will usually save you substantially more on your mortgage costs than you'll spend in charges.

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Understanding the Fees

There are a range of fees, which could apply to your mortgage. It's essential to understand the fee structure before going ahead with an application.

In some cases, charges make a commercial mortgage that otherwise seems competitive more expensive than an alternative product.

For example, a mortgage with a low interest rate but steep arrangement fees might be costlier than one with no arrangement fee and a slightly higher interest rate.

Some of the typical fees associated with UK commercial mortgage include:

  • Arrangement fees are the type of fees added to the mortgage after it's been approved. Be prepared that some lenders may request it sooner to safeguard against their offer being turned down. For loans with a value of up to £1 million, arrangement fees are usually 1-2% of the loan value.
  • Valuation fees are relatively straightforward and cover the cost of a valuer visiting the property and writing a report. You can expect to pay approximately £500 for a simple valuation for commercial mortgages, but it can be much higher in some cases. It is payable to the lender once you accept their offer.
  • Legal fees: you'll have to pay your own legal costs plus the lender's legal fees. It's generally around £500 for each side.
  • Broker fees: A broker charges a fee for their help and expert advice throughout the mortgage application, usually up to 1% of the loan value.

It's always crucial to have a full breakdown of all charges involved with your mortgage.

Some costs are rolled up in the first mortgage payment, so they won't always be transparent, and you could think you're making initial repayments when in fact, you're only paying set up costs.

Benefits of Using a Commercial Mortgage Advisor

So, if you don't need to use an advisor and are reasonably happy to identify the top deals on the commercial mortgage market, why do you need advice?

Here are just a few of the compelling benefits of working with Revolution Brokers.

  • Exclusive mortgage deals - some of the most specialist lenders in the UK won't deal directly with any applicant. Broker-exclusives offer huge advantages over any product you'll find on the open market.
  • Customised applications - if you have any risk factor, such as bad credit history, it's likely you will instantly ramp up the interest charges and be asked for additional security. A broker will strengthen your application and suggest ways to improve the associated risk factor, reduce your costs, and ease the requirements.
  • Independent advice - in some cases, a commercial mortgage isn't the right option! If you don't match general criteria, or there is a cheaper borrowing solution out there, our independent team of accredited advisors will be sure to let you know.

Remember that commercial mortgages are complex and can require extensive negotiating to pair up exit strategies and timelines, so we'd always recommend using a broker to ensure the process doesn't eat into your operating hours.

Loan Eligibility and Lending Criteria

Every lender will have its own lending criteria that you’ll need to meet to be offered a commercial mortgage. The checks they carry out could include:

  • Your debts and the cash flow enables them to ascertain how financially healthy the business is
  • The projected income
  • Whether you can meet the requirements for the deposit
  • How much rental income you will receive
  • Your assets credit and general income

If a commercial mortgage isn't right for you, there are other options you can consider, such as:

  • Bridging loans can help with a property purchase if you need to sell an existing property first.
  • Short-term loans: if you need access to funds but don't want to make a long-term financial commitment, this could be the solution. Businesses could use loans to cover cash flow working capital and other types of expenditure.
  • Unsecured business loans: lenders now offer unsecured business loans up to £350,000 rates are subject to underwriting anything from 1.9% – 22%.

How Do I Choose Commercial Mortgages UK?

There are two primary types of mortgage - an owner-occupier mortgage and a commercial investment mortgage.

Owner-occupier means you're buying a property through a secured loan to purchase somewhere to trade from. That could be an office, warehouse, workshop or yard, for example.

Commercial investment mortgages are used to purchase sites to rent out to other business clients.

You must know what type of loan to apply for, as it's inevitable you will be turned down if you apply for an incorrect category of commercial mortgage.

Can I Get a Fixed Rate Business Loan With Commercial Mortgage Advice?

Potentially. Fixed-rate commercial mortgages aren't a widely available product, and most will be based on a variable rate.

Usually, that's a fixed percentage above the base rate. Fixed-rate business loans can be arranged with the help of an independent broker, but they're generally only available on smaller mortgages of up to £500,000.

Will a Commercial Mortgage Broker Improve my Approval Chances?

Undoubtedly, a broker negotiates directly with a broad network of lenders, selecting optimal products from across the whole of the UK commercial mortgage market.

Lenders don't work on published rates tables or standard terms in commercial lending.

Instead, they'll have a defined risk profile and automatically reject any applicant who falls outside it.

Therefore, having a broker to negotiate, advocate, and structure applications that navigate the risk criteria improves your chances of approval.

What Should I Look For in a Commercial Mortgage Advisor?

Commercial mortgages are secured against the property and one of the most significant investments your business might make - whether that's trading premises or buying an investment property to let out.

Either way, finding the right commercial mortgage for you is vital, and having an expert commercial mortgage broker by your side can save thousands of pounds over the lifetime of a mortgage.

A commercial mortgage broker is a secret weapon in navigating the vast number of mortgage products with ease - and comparing every deal like-for-like to ensure you're making sound business decisions.

Here are some of the key benefits to working with an independent commercial mortgage broker:

  • Access to exclusive deals - many top lenders work exclusively with brokers and don't offer products with competitive rates directly to the public or business representatives.
  • Negotiating power - our experience in the commercial mortgage sector gives Revolution the knowledge and leverage to negotiate everything from terms to arrangement fees, interest rates, and exit penalties.
  • Independent advice - an unregulated commercial mortgage product varies substantially in terms of costs and charges. A commercial mortgage broker is invaluable in assessing whether the deal on the table is the best option for your commercial investment.

Revolution clients report tremendous savings, often through simply redirecting their application to a more flexible lender or working with us as their commercial mortgage broker to identify the most beneficial commercial mortgage products on the market.

Cost Savings Through an Independent Commercial Mortgage Broker

If you're looking for a commercial mortgage broker, the first step will be to assess your circumstances and the critical priorities of your commercial mortgage application.

For example, that might be:

  • Minimum monthly interest costs to maximise your profit.
  • Fast turnaround to secure a new premise quickly.
  • Flexible terms to adapt to your changing trade.
  • Generous criteria if your business is newly established.

The key is to ensure your commercial mortgage broker is independent and whole-of-market.

Why? Because a broker who isn't independent is hugely limited in the products they can recommend - they can only sell mortgages from a restricted list of deals available.

Whole-of-market means that the Revolution commercial mortgage brokers team can scour the UK marketplace and recommend any deal, financial product, and lender that we feel will be to your advantage.

Commercial Mortgage FAQs

Let's answer some of the most commonly asked questions about applying for and choosing a commercial mortgage in the UK.

What Does a Commercial Mortgage Broker Do?

A commercial mortgage broker, or mortgage advisor, works on behalf of businesses to help them find the most affordable and competitive mortgage products.

Here at Revolution, we work with companies looking for mortgages for a wide range of reasons, such as:

  • Purchasing a new trading premise or office space.
  • Buying a property to let out as a commercial rental unit.
  • Investing money in property as an asset.
  • Remortgaging an existing commercial mortgage onto a better rate.

UK commercial mortgages are unregulated, which means there are thousands of products offering a vast range of interest charges, arrangement fees and terms, so having a broker on your side is essential if you want to achieve the best rates going.

Our team assesses your requirements and then scours the market to compare the most appropriate mortgages from our UK-wide network of lenders.

As a whole-of-market broker, we provide access to every commercial mortgage out there, including broker-exclusive deals you won't find on the open market.

How Much Do Commercial Mortgage Brokers Charge?

Familiarising yourself with the fee structure is beyond vital. Before you proceed with a commercial mortgage application, you need to know that you are comfortable with the costs, as well as the regular repayments or interest you'll be charged.

Mortgage broker fees for a commercial property loan are usually about 1%, although that depends on several factors:

  • The value of the commercial mortgage.
  • Whether you're mortgaging or remortgaging.
  • If the mortgage is for one property or an extensive portfolio.
  • The nature of the financing itself.

For example, if you're looking to buy a commercial property at auction, we might recommend bridging finance to ensure you have the funds in place well before the 28-day payment deadline.

You'd then need a commercial mortgage as your exit strategy, and so facilitating a spliced mortgage product, and aligning the repayment of the original auction finance, would require more work than arranging a standalone commercial mortgage.

If you're interested in comparing commercial mortgage broker fees or seeing our indicative charges for your commercial property purchase, please give us a call at your convenience!

However, it's worth noting that with such a vast lending market, you'll almost always save thousands of pounds having a broker negotiate your rates for you, making the cost of hiring an experienced commercial mortgage broker far less than the savings on offer!

How Do Commercial Mortgage Brokers Get Paid?

The exact payment process for arranging your commercial mortgage really depends on the type of lending you need and what products are best suited to your business.

Some lenders include brokerage fees within their product packages, in which case you might not incur any substantial costs to organise your borrowing account.

In other cases, we offer a fixed rate or a set percentage of the total value you need us to arrange for you, which we'll always disclose and agree on up-front before any work begins.

Average UK commissions for commercial mortgages range between one and six per cent of the loan value, again dependent on the size of the borrowing and the complexity of the application.

How Much Do I Need for a Commercial Mortgage?

Deposit requirements vary between lenders, as do their interest rates and the terms on offer.

Mortgage lenders will look at several factors in deciding whether to accept your application. Having a larger deposit is advisable if there are any risk factors, such as a history of bad company credit.

Usually, you'll require at least a 20% deposit as an absolute minimum but will achieve better rates with 40% or above.

The lender won't typically have a fixed deposit requirement but might have a minimum threshold on commercial mortgages, generally around 30% on average.

They will also assess the Loan to Value, which evaluates how much you want to borrow against how much the property is worth.

For example, a commercial building worth £500,000 requiring a mortgage of £300,000 is an LTV of 60%, so a 40% deposit will mean you have negotiating power when it comes to rates.

Can I Get a Commercial Mortgage if My Bank Has Turned Me Down?

Yes, you can! Every commercial mortgage lender will assess each application on a case-by-case basis.

The most common reason for mortgage rejection is that you've applied to a bank with criteria you don't meet or where they don't offer a commercial mortgage of the kind you're applying for.

For example, the lender might have a threshold deposit requirement or not sell commercial mortgages for the type of property you wish to buy.

There is no reason a great broker can't help you find a competitive commercial mortgage after refusal from another bank - one lender might be more than happy to approve an application that another hasn't accepted.

Your commercial mortgage rates won't necessarily increase after one rejection, either.

Working with Revolution is the best way to ensure your application is structured to mitigate any perceived risks and improve your chances of approval.

Can I Apply For an Interest-Only Commercial Mortgage?

Commercial mortgages can be either repayment or interest-only. The format works just the same as for a residential mortgage:

  • Interest-only means you pay only the interest in your regular payment and will need an exit strategy to show how you'll pay back the original balance at the end of the term. That could be through remortgaging or selling the property, for example.
  • Repayment means you pay a proportion of the capital and the interest charge every month. When the mortgage term ends, you own the property and have nothing left to pay.

However, fewer lenders offer commercial interest-only mortgages, and rates can be higher, so it's essential to work with a broker to identify those deals and get your application over the finish line.

Most interest-only commercial loans require a deposit of at least 25%. While your monthly payments will be lower, you will probably end up paying more interest overall across the lifetime of the mortgage.

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FCA disclaimer

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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