Buying Commercial Property

Two buyers, two mortgages

Every commercial property purchase is one of two deals. Investors buy premises to lease to someone else — the rent is the return, and the loan is an investment mortgage, assessed on the strength of the lease and the tenant. Owner-occupiers buy the roof over their own business — the loan is an owner-occupier mortgage, assessed on the trading strength of the company that will trade from it.

Same building, same price — two completely different credit decisions. Knowing which buyer you are determines your deposit, your rate, your term and the evidence a lender will ask for.

The investor's arithmetic

An investment mortgage lives or dies on the lease. Lenders price against the rent, the years left on the term, and the covenant of the tenant paying it. Lenders consider deposits ranging from 5% to 30%, and the rent must comfortably cover the interest with room to spare.

• —Lease length and break clauses — a long, unbroken term is worth a lower rate
• —Tenant covenant: who pays the rent, and how strong are their accounts
• —Yield versus mortgage rate — the margin between them is your income

The owner-occupier's case

Buy the premises you trade from and every payment builds equity instead of padding a landlord's yield. Lenders assess these mortgages against your business's accounts — two or three years of them — rather than a tenancy, and deposits ranging from 5% to 30% are considered.

The hidden benefit is control: no rent reviews, no lease expiry hanging over a business you have spent years building, and a freehold that usually appreciates while you work.

Structuring either deal

Both mortgage types run fifteen to twenty-five years, with interest-only periods often available — particularly to investors, where rental cover is strong. Bridging secures a building at speed while long-term funding completes. And for owner-occupiers with pension savings, holding the premises inside a SSAS or SIPP and leasing it back to your own company is a specialist but well-trodden route worth proper advice.

Commercial property values in many parts of the UK have remained resilient across economic cycles, making freehold business property one of the most attractive long-term investments available to owner-managed businesses. Commercial mortgage loan-to-values typically range from 65 to 75 percent, with rates and terms varying significantly depending on the property type, tenant, and location.

• —A surveyor's valuation, never the asking price
• —Title, access, boundaries and restrictive covenants checked early
• —Planning use class confirmed for your trade before you offer

If you are ready to look at funding for a specific purchase, read more about Commercial Property acquisition finance and loans, including how lenders assess these deals and the areas we cover.