What Is a Commercial Mortgage?

A commercial mortgage - sometimes called a "commercial property mortgage" or "commercial property loan" - is quite simply a mortgage that’s secured against a commercial property. Commercial properties are properties that house businesses or operate as investments, like an office building or block of flats.

Do You Need a Commercial Mortgage?

You may require or benefit from a commercial mortgage if you’re a:

  • Business owner-occupier who wants to buy a property and use it as trading premises for your business
  • Commercial property investor who wants to buy a property and let it out to a business you don’t own
  • Residential property investor who wants to buy a multiunit freehold block to let to tenants
  • A commercial or residential property owner with a varied portfolio of rental (residential or commercial) properties who wants to remortgage under one potentially cheaper mortgage

What Kinds of Properties Require a Commercial Mortgage?

Properties and land often used as security for commercial mortgages include:

  • Office buildings
  • Warehouses/industrial units
  • Shopping centres/shops
  • Care homes
  • Nursing homes
  • Dentist
  • Doctor’s Surgeries
  • Veterinary practices
  • Pharmacies
  • Blocks of flats
  • Hotels/guest houses
  • Agricultural land
  • Funeral Parlours


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Why Should You Use a Commercial Mortgage Broker to Finance Your Property?

Although some high street lenders do offer commercial mortgages, this is only a small sample of what’s out there. There are a lot of commercial mortgage lenders that aren’t available on the high street, like centralised lenders and private banks. Some won’t even consider applications directly from borrowers as they act through brokers/intermediaries only.

This means you may miss out on more competitive business mortgage rates and better deals if you don’t use a specialist broker.

John Charcol are an independent, commercial mortgage broker, which means we can access every commercial mortgage lender on the market. We can find you a deal that’s actually worthwhile.

What’s more, we can consider your portfolio of properties as a single package, which could give you access to the best commercial mortgage rates across all your properties.

How Can John Charcol Help You Find a Commercial Mortgage?

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We work around your schedule to help you arrange a mortgage that suits your circumstances, no matter how complex.

Our Commercial Mortgage Process

1. Meeting with Adviser and Commercial Lending Research

When you phone us, you can either arrange a phone appointment with your adviser or a face-to-face meeting – whatever suits you best. Your adviser will ask you some questions and, once they have all the information they need, they’ll go away and find you the commercial lender for your circumstances and future needs. They’ll also arrange a follow up call to present you with what they’ve found. It may require more than one conversation to gather all the right information, depending on situation and requirements.

2. Decision in Principle

Once you’re happy with their recommendation, the adviser will approach the lender to gain an initial/verbal DIP (Decision in Principle) which is basically a promise from the lender that they’ll loan you money on the condition that the information you’ve provided is correct and subject to a valuation of the property. The conditions outlined in the DIP will be based on a conversation you have with the adviser, where you explain your situation and what you want to achieve.

3. Offer on Property/Refinancing

After the lender has agreed your scenario, you’ll be in a position to make an offer on a property or move forward with the refinancing.

4. Pre-Application and Submission

Following the acceptance of your offer or decision to proceed with refinancing, we’ll send you some information that explains all the documents we need to submit to the lender. You’ll be assigned a client relationship manager who’ll check and submit certified copies of your documents; they’ll liaise with both you and the lender. Your adviser will then submit the fully packaged mortgage application.

5. Lender Underwriting and Valuation

The lender will underwrite your application; this basically means they’ll verify the information you’ve provided and review all your documents for themselves. They’ll also instruct a valuation for their purposes on the property that’s being used as security to make sure there are no significant problems with the property and that it meets their requirements.

6. Mortgage Offer

If the lender is happy with everything they’ve found, they’ll send you a mortgage offer. They’ll also send us a copy.

7. Conveyancing

After you’ve accepted your mortgage offer, you’ll go through the legal part of the process, known as conveyancing. This is where the solicitors/conveyancers draw up contracts and organise the actual, legal purchase of the property/refinancing. If buying, you’ll also need to arrange buildings insurance at this stage, making sure it’s in place from exchange.

8. Exchange and Completion

If you’re buying a property, your conveyancer/solicitor will exchange contracts with the seller’s conveyancer/solicitor; it’s at this point that you would put down your deposit and be legally bound to the property. The purchase will complete when the money is transferred on an agreed-upon date. If you’re refinancing, then your conveyancer/solicitor will set a date to draw down the funds and pay off any existing lender(s) once the mortgage offer’s released.

What Commercial Mortgage Lenders Consider

A commercial mortgage lender considers both the income of the borrower and the business of the tenants when assessing an application.

If you’re a business owner-occupier, you’ll need to provide:

  • Proof of identity and address
  • Evidence of personal income
  • 3 years’ worth of financials for the business – they may consider projections if the company is in its infancy but typically require 3 years overall
  • Trading figures covering the last 3 years
  • Bank statements covering the last 3 months

If you’re a commercial property investor, you’ll need to provide:

  • Proof of identity and address
  • Evidence of personal income
  • Copies of lease agreements – there are a few lenders that do provide mortgages for vacant commercial properties, but these often come with stricter criteria and aren’t very common
  • Proof of agreed rental income and/or yield of the property/properties

If you’re a residential property investor, you’ll need to provide:

  • Proof of identity and address
  • Evidence of personal income
  • Copies of lease/tenancy agreements
  • Proof of agreed/estimated rental income and/or yield of the property/properties

Commercial Mortgage FAQs

How Many Years Is a Commercial Mortgage?

5 years is the length of the average commercial mortgage.

What’s the Minimum Commercial Mortgage Deposit?

The minimum deposit for a commercial mortgage is 25% but applicants often put down a little more, often between 25% and 40%.

What Are the Average Commercial Mortgage Rates?

These can vary from smaller commercial loans and trading businesses where rates can be from 2% up to full commercial development loans that can go up to 12% in extreme cases.

What Is the Difference Between a Commercial and Residential Mortgage?

Commercial mortgages work in the same way as residential mortgages and are available on both repayment and interest-only bases. Nonetheless, there are a few differences.

The key differences between commercial mortgages and residential ones are:

  • The property which acts as security must be used for commercial business only or a mixture of commercial and residential use
  • Commercial mortgages aren’t normally available on fixed rates
  • You usually pay higher interest rates on a commercial mortgage rather than residential mortgages as they’re riskier investments for lenders
  • Applications are always assessed manually and there’s no one size fits all criteria
  • The DIP (Decision in Principle) is almost always a verbal agreement
  • The timeframe is typically anywhere between 5 – 12 weeks

Can I Live in a Commercial Property?

You can live in a commercial property if it’s a mixture of commercial and residential use. Nevertheless, if this is something you'll likely want to do, you may want to check with the lender before submitting an application just to make sure that they'll be accommodating.

Can I Get a Residential Mortgage on a Commercial Property?

You can’t take out a residential mortgage on a commercial property. Commercial properties are riskier for lenders, which is why they require a specific type of mortgage. Taking out a residential mortgage on a property you intend to use for commercial purchase is classified as fraud and will put your property at risk of repossession.

If a property is a mixture of commercial and residential use, then a residential mortgage lender will refuse to lend on a property of which more than 40% is used for commercial purposes.

Can I Convert a Commercial Mortgage into a Residential Mortgage?

You would only be able to convert a commercial mortgage to a residential one if the use/classification of the property changed from commercial to residential. You would need to fill out a small planning application if you wanted to change the use classification of a property.  

Can I Have Multiple Properties on the Same Loan?

Securing a loan on multiple properties or your portfolio is called cross-charging and is quite common for trading businesses in multiple locations. We can help you arrange this kind of commercial mortgage.

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