Commercial Buy to Let Mortgage

Commercial Buy to Let Mortgages

If you’re an investor looking to diversify your portfolio beyond traditional residential buy-to-let, you may consider adding investment property or buy to let property to your assets. A commercial buy-to-let mortgage is typically used for non residential property investments, which could open doors to higher rental yields, longer lease terms, and greater tenant security.

Whether you’re an experienced landlord or considering your first commercial acquisition, understanding the mechanics of commercial BTL finance is key to maximising your investment.

What Is a Commercial Buy to Let Mortgage?

A commercial buy-to-let mortgage is a loan secured against non-residential or mixed-use properties that are rented out to business tenants. The debt secured on the property means it can be repossessed if repayments are not maintained. This includes:

• Retail units (shops, salons, etc.)
• Offices
• Warehouses and industrial units
• Mixed-use properties (e.g., shop with flat above)
• Multi-unit freehold blocks (MUFBs)
• Houses of Multiple Occupation (multiple occupation) or serviced accommodation, in some cases (semi-commercial)

Types of Commercial Properties

Commercial properties come in a wide variety of forms, each offering unique opportunities and challenges for investors and businesses. The main categories include office buildings, retail units such as shops and salons, industrial properties like warehouses and manufacturing facilities, and specialist spaces such as healthcare clinics.

Offices are often situated in city centres and require up-to-date amenities to attract quality tenants, while industrial properties are typically located on the outskirts of towns, prioritising easy access to major transport routes. Retail units benefit from high footfall locations, but may be more sensitive to changes in consumer trends.

When considering a commercial mortgage, lenders will assess the type and condition of the property, as these factors influence both the property value and the potential rental income. The loan to value (LTV) ratio is a key metric, determining how much can be borrowed against the property’s value.

Businesses and investors should carefully evaluate which type of commercial property best suits their needs and long-term goals, as this will impact the mortgage terms, the amount of loan available, and the overall return on investment.

Commercial BTL vs Residential BTL – Key Differences

A residential mortgage is typically used for a residential property, while commercial BTL mortgages are for non-residential or commercial properties.

Who Can Benefit from a Commercial Buy to Let Mortgage?

This type of finance, along with options like a business loan, is ideal for:

• Experienced residential landlords looking to diversify into commercial holdings
• Investors buying retail or office space
• Limited companies/Special Purpose Vehicles (SPVs) holding mixed-use portfolios
• Self-employed individuals who want to purchase their trading premises as an investment
• Developers converting properties to mixed-use, where loans such as commercial mortgages or business loans can be used for funding
• Investors buying via auction

Key Criteria for Commercial BTL Mortgages

Several factors influence eligibility and terms for commercial buy-to-let mortgages, including deposit size, property type, experience, and lender requirements.

Each lender has different policies, but in general you’ll need:

1. Deposit / Loan-to-Value (LTV)

• Most lenders offer up to 65–75% LTV
• 25–35% deposit typically required
• Lower LTVs available for better rates
• A larger deposit or larger deposits may be required compared to residential mortgages, which can affect the range of available lenders and the interest rates offered.

2. Tenancy Agreement

• Lenders favour long-term leases (3–25 years)
• Full Repairing and Insuring (FRI) leases are preferred
• Multi-tenant properties may be considered depending on lease strength
• Security may be required by lenders, and approval is subject to status.

3. Experience

• Some lenders require landlord or commercial investment experience
• Others accept first-time landlords with strong tenant profile and income
• Lending is subject to meeting certain experience or financial criteria.

4. Income & Affordability

• Rent must comfortably cover the mortgage (usually 125–145% ICR)
• Borrower’s personal or business income considered in some cases
• The ability to repay the loan and make regular mortgage payment is assessed, and borrowers must pay and keep paying throughout the mortgage term.

5. Property Type & Condition

• Must be lettable or already let to a viable business
• Empty commercial units or redevelopment projects may need bridging loan or asset finance first to fund redevelopment or specific capital assets.

Interest only and interest only mortgage options are available for buy-to-let properties. With an interest only mortgage, you pay only the interest each month, resulting in lower monthly payments, but the principal must be repaid at the end of the mortgage term. This structure can align with investment strategies where rental income covers the mortgage payment, but you need a plan to repay the capital at the end.

Some mortgage products allow early repayment, but early repayment charges may apply if you repay before the end of the fixed or agreed period. Always check the terms for early repayment flexibility and any associated costs.

Other costs to consider include arrangement fees, valuation fees, legal fees, and product fees, which can impact the overall affordability of the mortgage.

Typical Commercial BTL Mortgage Costs

What Documents Will You Need?

To apply for a commercial buy-to-let mortgage, prepare the following:

• ID and proof of address
• Company documents (if buying via a limited company)
• Business/landlord CV
• Lease agreements / tenancy contracts
• Property details (including photos and floor plans)
• Recent bank statements
• Property portfolio (if applicable)
• Income proof or company accounts

Lenders Offering Commercial Buy to Let Mortgages

Some lenders also provide a dedicated relationship manager to assist with your application and offer ongoing support.

Commercial Mortgages for Limited Companies

Limited companies are increasingly using commercial mortgages to acquire commercial properties, whether for investment or as business premises. These commercial mortgages are tailored to the needs of businesses, offering flexible loan terms, competitive interest rates, and the ability to borrow larger sums than most residential mortgages. When applying as a limited company, it’s important to present a strong business case, including up-to-date financial statements, a clear business plan, and a solid credit history.

Lenders typically require a minimum deposit often between 20% and 40% of the property’s value and may charge arrangement fees and other upfront costs. The application process can be more complex than for individuals, so working with a dedicated team of specialist mortgage brokers can help limited companies navigate lender requirements and secure the best deal for their specific circumstances.

Limited companies should also factor in the tax implications of owning commercial property, such as stamp duty land tax, income tax on rental profits, and potential capital gains tax on future sales. By understanding these costs and working with experienced advisors, limited companies can make informed decisions and maximise the benefits of commercial property ownership.

Can You Use a Commercial BTL Mortgage for Mixed-Use Properties?

Yes, properties that include both residential and commercial elements (like a shop with a flat above) are classed as semi-commercial or mixed-use, and can be funded via specialist lenders. When purchasing mixed-use properties with a commercial buy-to-let mortgage, buyers should consider the associated costs such as Stamp Duty Land Tax and the specific process involved in acquiring these types of properties.

These can be great investments:

• No Section 24 tax restrictions (mortgage interest still deductible)
• Higher yields than pure residential
• Broad range of tenant types

Tax Considerations for Commercial Buy to Let

Tax planning is a vital part of any commercial buy-to-let strategy. For limited companies, one of the main advantages is the ability to deduct mortgage interest payments as a business expense, which can help reduce corporation tax liability.

However, investors must also account for other taxes, including stamp duty land tax on property purchases, capital gains tax when selling a commercial property, and potentially VAT on certain transactions.

It’s important to understand how these taxes apply to your specific business structure and investment goals. For example, limited companies may be able to claim capital allowances on qualifying assets within the property, such as fixtures and equipment, further reducing taxable profits.

On the other hand, the sale of a commercial property may trigger capital gains tax and, in some cases, VAT, depending on the property’s use and the company’s VAT status. Seeking professional tax advice is highly recommended to ensure compliance and to take advantage of any available reliefs or allowances, helping you to optimise your returns from commercial buy-to-let investments.

Stress Testing and Risk Assessment

Lenders take a rigorous approach to assessing risk when considering applications for a commercial mortgage. Stress testing is a key part of this process, where lenders evaluate whether you could continue to meet your mortgage payments if circumstances change, such as a rise in interest rates or a drop in rental income. This involves modelling different scenarios to ensure that your income from the property will comfortably cover the mortgage, even in less favourable conditions.

A thorough risk assessment also looks at the property’s value, the reliability of rental income, and your credit history. Lenders want to be confident that you can manage the financial commitment, so they may require detailed financial information and projections as part of the mortgage application.

As a borrower, you can use mortgage calculators and other tools to assess your own affordability and risk exposure before applying. By understanding how lenders approach stress testing and risk assessment, you can better prepare your application and increase your chances of approval.

Important Considerations Before Applying

• Tenant strength matters – long leases with reliable businesses improve your borrowing power.
• Empty properties may need refurbishment or bridging before long-term commercial BTL is available.
• Planning usage class (e.g., A1, B1, E) can impact lending eligibility and rental demand.
• Lenders vary in appetite – some focus on prime locations only, while others specialise in high-street or suburban units.
• Note: Lender and broker availability may be limited during public holidays, so plan your application timeline accordingly.

Mortgage Calculators and Tools

Making informed decisions about a commercial mortgage is easier with the right tools at your disposal. Mortgage calculators allow you to estimate key figures such as monthly repayments, total interest paid, and the maximum loan amount you can afford based on your income and the property’s value. These tools can also help you compare different mortgage products, such as fixed rate versus variable rate options, and see how a lump sum payment could reduce your overall interest costs.

By using a mortgage calculator, you can quickly assess the impact of different interest rates, loan terms, and deposit amounts, helping you to find the best deal for your needs. Comparing offers from multiple lenders is essential, as costs and terms can vary widely.

Whether you’re planning to borrow for a new investment or to refinance an existing property, these tools provide valuable insights to guide your decision-making and ensure you’re fully prepared for the financial commitment.

Property Management and Maintenance

Owning a commercial property comes with ongoing responsibilities, and effective property management is crucial for protecting your investment and maximising returns. This includes regular maintenance to keep the property in good condition, prompt attention to repairs, and ensuring compliance with all relevant regulations. Good property management also involves building strong relationships with tenants, handling rent collection, and addressing any issues that arise.

Many investors choose to outsource these tasks to specialist property management companies, allowing them to focus on their core business activities while ensuring the property is well looked after. Regular maintenance not only helps to avoid costly repairs but also preserves the property’s value and appeal to tenants.

When calculating the potential returns from a commercial property, it’s important to factor in the costs of management, maintenance, and any necessary repairs, as these can have a significant impact on your overall profitability.

Why Use a Commercial Mortgage Broker?

Commercial mortgages are more bespoke than residential lending. Working with an experienced commercial broker like myself means:

• Access to specialist lenders not available direct
• Correct structuring advice (Ltd Co, SPV, personal name)
• Expert handling of complex cases
• Advice on exit strategies, tax, and portfolio growth
• Saving time and avoiding mistakes

Commercial buy-to-let mortgages are an excellent option for investors looking to expand their portfolios with high-yielding properties. While they come with higher costs and complexity, the potential rewards, such as long-term leases and reduced maintenance responsibilities, make them a compelling choice for many landlords.

Before committing to a commercial buy-to-let mortgage, it’s crucial to evaluate your financial situation, rental market conditions, and the property’s potential. Consulting with a mortgage broker or financial advisor can also help secure the best deal tailored to your needs.

If you’re ready to invest in commercial property, consider the lenders listed above and compare their terms to find the right mortgage for your goals.

Get help from an experienced mortgage broker.

You can speak to one of our specialist mortgage brokers who would be able to guide you through the process. They will advise if there is a lender available and the maximum loan amount based on your circumstances. We are a whole of market mortgage brokerage with access to all lenders. Call us on 01332 470400 or complete the form with your details for us to give you a call back.

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