We can now help you with commercial mortgages
Commercial mortgages are loan used for buying, refinancing or developing property that is not primarily used as a residence. As the name suggests, they are for buildings that are use for commercial use.
That includes offices, shops, care homes, factories, warehouses and hotels. They can often be used to finance property built for living in to generate income, such as flats or houses in multiple occupation (HMOs). But that all depends on the scale and structure.
The Mortgage Dog is delighted to announce that we can now offer commercial mortgages! As reports suggest that the mortgage market looks like it's going to be boomingin 2026, we thought it was time to help clients who want help finding commercial mortgages.
And even though there are tough economic challenges at the moment, figures from theBayes Real Estate Research Centre show that commercial real estate lending has been thriving over the last year.
Commercial mortgages are not like residential mortgages in that they are not as standardised. So, let’s have a look at commercial mortgages and how they work in the UK.
What are commercial mortgages?
As we’ve already seen, a commercial mortgage is a loan to buy or finance a property whose aim is not for residential use.
Unlike a mortgage for your home, lenders tend to look more closely at the property, business and investment behind the purchase than a standard home loan. They will also look at the commercial experience of the person who wants to borrow the money as well as their financial position.
While residential mortgages are more product based, commercial finance tends to be more bespoke. And that’s where the experience of a mortgage broker, such as The Mortgage Dog’s team, becomes valuable.
Who needs commercial mortgages?
Commercial mortgages are used for a range of purchases or investments. On the whole, the distinction between them and residential mortgages is whether the property will be occupied by the owners or whether the property is an investment.
There are also commercial mortgages for owner-occupiers, for example cafe owners who want to buy a property. And there are investment commercial mortgages, where the property will be let to tenants to generate an income. The difference matters because lenders will assess the risk differently depending on what the property is used for.
Commercial mortgages are often used by:
Investors buying commercial or semi-commercial property
Business owners buying property to operate their company from
Developers refurbishing property or a change-of-use project
Landlords with large portfolios or properties with a high value
How do they work?
Commercial mortgages typically run for terms between 5 and 25 years. But this can vary. The loan-to-value ratio (LTV) is usually lower than residential mortgages. They often range between 60-75%. But this all depends on the type of property, the strength of the application and the lender and their appetite for risk.
Interest rates can be fixed or variable and they are generally higher than the rates you pay for the mortgage on your home. That’s because commercial lending is considered more of a risk than residential lending. There are often arrangement fees and they are often expressed as a percentage of the loan amount.
Affordability is also assessed differently. Lenders don’t just look at personal income, they focus on the property and its ability to service the debt. That means, for example, whether rental income will be enough to make it a good business proposition. And for owner-occupied properties, the financial health of the business (such as profit and cash flow) plays a central role.
Are they more complex?
As mentioned, there is more to a commercial mortgage than simply applying and providing your income, expenditure, debt, credit score and property value. Lenders have different criteria! Some prefer to lend to certain sectors, while others are happy to take more risk.
For example, some might not lend to hospitality businesses because they prefer offices or retail units. Others will be happier lending to mixed-use properties or semi-commercial properties.
Legal work is often more involved than residential mortgages and valuations tend to be more detailed. And underwriting takes longer than a traditional home loan.
But the flexibility of commercial mortgage lenders can be a positive, too. They are often willing to look beyond simple credit scoring and take a more practical approach to your overall proposal.
Why you need a mortgage broker
Mortgage brokers can really make a difference when looking for a residential home loan, which is something we’ve looked at before. And when it comes to commercial mortgages, a broker can be a huge bonus.
That’s because they can help understand the full picture of your business plans. This can really help your application process. If you try to take out a commercial mortgage with a poor application, it might mean you won’t be able to secure your loan.
At The Mortgage Dog, we have specialist advisers who will help you with your application. So,contact us today to speak to our experts.
