Published by The Finance Place · Updated · General information
Buying the unit your business operates from
An owner-occupied commercial mortgage funds premises used by your own business. Compare the full ownership cost with continuing to rent: debt payments, maintenance, insurance, tax, transaction costs and cash tied up in the deposit. Buying can give control over the premises, but it also concentrates business and property risk in one place.
- Prepare recent accounts, current management information and a cash-flow forecast that includes the new property commitment.
- Show what happens in a weaker trading period. Revenue alone does not measure the money available to service debt.
- Decide who buys the property: the trading company, another company or individuals. Ask your solicitor and tax adviser about ownership, leases and security before committing.
Commercial investment property is a different repayment story
An investment mortgage relies on a property let to other businesses. The lease and tenant matter as well as the building. Test rent after costs and a void period, rather than treating gross rent as money available for every mortgage payment.
- Review lease expiry, break dates, rent reviews, repairing obligations and tenant payment history.
- Check the cost and realistic time needed to re-let if the tenant leaves.
- A limited company buying a residential rental is not automatically a commercial property mortgage case. Residential buy-to-let and commercial premises require different assessments.
Deposit and total completion cash
There is no universal commercial deposit percentage. Property use, value, borrower strength and lender appetite affect the possible loan. A £500,000 purchase at an assumed 70% LTV needs a £150,000 deposit. That leaves all transaction costs still to fund. Keep working capital separate so completion does not consume the money needed to run the business.
- Budget arrangement and broker fees, valuation, legal work, tax and any VAT cash requirement.
- If a fee is added to the mortgage, it can increase gross LTV or reduce the amount released to you.
- Tax treatment depends on location and the transaction. HMRC's non-residential SDLT guidance covers England and Northern Ireland; Scotland and Wales have different taxes.
Refinancing or releasing equity
Equity on paper is not the same as cash you can release. Deduct the existing lender's settlement figure, any early repayment charge and all new finance costs from the proposed advance. A lower monthly payment over a longer term can cost more overall. Check the remaining term, fixed-rate expiry, security package and any personal guarantees before switching.
Model a refinance and check the net proceeds →Mixed-use and semi-commercial property
A shop with a flat above it can involve commercial and residential income, distinct leases and different valuation issues. Tell the lender if you or a family member will live in any part of the property. Tax classification and mortgage regulation are separate questions; the label 'commercial' does not resolve either one. Get the occupancy, title and intended use checked early.
Rates, repayment structures and security
Compare the rate basis, any fixed period, margin and reference rate, arrangement fees, exit charges and legal costs. An interest-only structure leaves the original capital to repay at the end. A repayment mortgage reduces capital but normally needs a larger monthly payment. Neither an LTV calculation nor a debt-service ratio is a lending decision. Property given as security, including a home, can be at risk if the obligations are not met.