Commercial mortgages explained
If your business needs its own premises — or you want to buy commercial property as an investment — a commercial mortgage is usually how it's funded. Let me walk you through how they work, in plain English, minus the jargon.
What is a commercial mortgage?
A commercial mortgage is a loan used to buy or refinance property that's used for business — think a shop, office, café, garage, warehouse, or a unit you rent out to other businesses. Like a home mortgage, the property acts as security for the loan. That means if the loan isn't repaid, the lender can ultimately take steps to recover what it's owed against the property.
People generally use a commercial mortgage to do one of a few things:
- Buy premises to trade from — instead of renting, you own the building your business operates in.
- Buy property as an investment — you own the building and let it to other businesses for rent.
- Refinance — move an existing commercial mortgage to different terms, or borrow more against a property you already own to raise capital for the business.
Owner-occupier vs commercial investment
It helps to know which camp you're in, because lenders look at them a little differently.
- Owner-occupier: your own business trades from the premises. Here a lender is mostly interested in whether the business can comfortably afford the repayments.
- Commercial investment: you buy the property to let out and earn rent. The rental income the property produces becomes a big part of the picture.
- Semi-commercial (mixed-use): a property that's part business, part residential — the classic example being a shop with a flat above it. These sit somewhere in between and are their own specialism.
It's a general point, not a recommendation — an adviser can help you work out which type actually fits what you're doing.
How they differ from a residential mortgage
Commercial mortgages tend to be more bespoke than a typical home mortgage. There's less of a one-size-fits-all product and more of a case-by-case decision.
- Underwriting is more individual. Lenders often assess each application on its own merits rather than a fixed tick-list.
- Deposits are usually larger. As a rule, you'll generally need to put in more than you would for a residential mortgage, though it varies a lot.
- Affordability is judged on the business. Rather than a salary, lenders look at trading accounts, projected income, or the rent the property brings in.
- Rates can be fixed or variable, and terms can run over many years — the exact shape depends on the lender and your situation.
I won't put numbers on any of that, because they genuinely swing from case to case — that's a conversation for a qualified adviser.
What lenders tend to look at
Every lender is different, but a commercial application will often be weighed up on things like:
- Trading history and accounts — how the business has performed and whether it can support the repayments.
- Projected or rental income — what the business or property is expected to bring in.
- The deposit — how much you're putting in relative to the property's value.
- The property itself — its type, condition and how easy it would be to sell on.
- Your experience and credit history — especially for investment or portfolio lending.
- A business plan — sometimes asked for, particularly for newer ventures.
None of these guarantees an outcome, and nothing here means you would or wouldn't be approved — that's always the lender's decision.
Using a broker vs going direct
Commercial lending is a bit of a specialist corner of the market, so this is worth understanding honestly.
A whole-of-market broker can search across many lenders — including smaller, specialist ones you won't find on the high street — and some commercial lenders only deal through brokers, so a broker can open doors you couldn't reach on your own. They also handle a lot of the legwork and packaging.
To be fair, it's not one-sided: some lenders offer direct-only deals that a broker can't access, and some brokers charge the client a fee for their work. Any such fee should be explained to you clearly and up front before you commit to anything.
There's no universal 'right' answer here — it depends on your circumstances, which is exactly the sort of thing a real adviser can talk through with you.
Costs and things to weigh up
A commercial mortgage usually comes with more than just the monthly repayment. Without putting figures on anything, the sorts of costs and details worth being aware of include:
- Arrangement and lender fees for setting up the loan.
- Valuation and legal costs — commercial valuations can be more involved than a home survey.
- Broker fees, where they apply, disclosed to you in advance.
- Early repayment terms — what happens if you want to repay or refinance sooner than planned.
- Whether the rate is fixed or variable, and what that means for your budgeting.
The point isn't to memorise all this — it's to know the right questions to ask. An adviser can lay out the full picture for your specific case.
The honest bit
I can explain how commercial mortgages work and what lenders tend to look for — but I don't give advice or recommend any particular product or lender. When you're ready, I'll introduce you to a qualified, whole-of-market adviser who does. They're usually paid by the lender rather than by you, there's no fee from me, and there's no obligation.
Common questions
What's the difference between a commercial and a residential mortgage?
A residential mortgage is for a home you live in and is mainly judged on your personal income. A commercial mortgage is for property used for business — premises you trade from, or property you let to other businesses — and is judged more on the business itself: its accounts, its affordability, or the rent the property earns. Commercial lending also tends to be more individually underwritten, so there's less of a fixed, off-the-shelf product.
How big a deposit do I need?
There's no single answer, so I won't put a number on it. As a general rule, commercial mortgages tend to need a larger deposit than a typical home mortgage, but it varies a lot depending on the lender, the property type, the business and whether you're an owner-occupier or an investor. A whole-of-market adviser can look at your situation and tell you what's realistic rather than guessing.
Can I get a commercial mortgage for a mixed-use property?
Mixed-use, or 'semi-commercial', property — like a shop with a flat above it — is common, and there are lenders who specialise in it. Because it's part business and part residential, it's assessed a bit differently from a purely commercial or purely residential property. It's the kind of case where a broker who knows the specialist lenders can be especially useful.
Do I actually need a broker for a commercial mortgage?
Not always — some lenders will deal with you directly, and a few even offer direct-only deals. That said, commercial lending is a specialist area and many lenders only work through brokers, so a whole-of-market adviser can reach options you might not find alone and handle the paperwork. Some brokers charge a client fee, which they should tell you about up front. Whether it's worth it depends on your circumstances, and there's no obligation to go ahead.
Want to talk it through with a real person?
When you're ready, I'll connect you with a qualified, whole-of-market adviser who can look at your situation and search across lenders for you. The introduction is free, the adviser is usually paid by the lender or provider rather than by you (any fees they or the lender charge are explained up front), and there's no obligation to go ahead.
Find my best deal →Your property may be repossessed if you do not keep up repayments on a mortgage or other debt secured against it. This guide is general information, not advice.