In this brief guide, we are going to discuss what a bad credit commercial mortgage is and how you can improve your chance of approval.

Bad credit commercial mortgage

Getting a commercial mortgage with bad credit could be very hard as most mortgage lenders prefer to lend to borrowers with acceptable credit histories. 

This doesn’t mean there won’t be bad credit commercial mortgage lenders out there for you, it will all depend on the type of bad credit you have and how long it has been since you accrued the bad or adverse credit on your credit score. 

You can expect to have fewer mortgage options for a bad credit commercial mortgage, pay higher mortgage rates and put down a much larger mortgage deposit.

Different bad credit mortgage lenders will have their own criteria on what type of borrower they will accept.  Some bad credit mortgage lenders may accept borrowers with County court judgements(CCJ’s) but will insist that they are satisfied whilst others will accept CCJ’s as long as they are at least 3 years old. 

Other commercial mortgage lenders may insist that the total amount of CCJ’s is not more than a specific amount.

When considering commercial mortgages bad credit could include:

A CCJ

An IVA

A debt management plan

A default

A bankruptcy

A home repossession

A mortgage default

Missed credit repayments

Late credit repayments

If your bad credit occurred more than 6 years ago then it is very likely no longer on your credit report as these negative markers only stay on your credit report for 6 years.

This means you will hopefully see a boost in your credit score after 6 years and the bad credit shouldn’t affect you. The mortgage lender may still ask you about your credit history and you may need to disclose these details(even though they are no longer on your credit report) and they could affect the commercial mortgage lenders decision to lend to you.

A bad credit commercial mortgage broker may be able to assist you in getting a bad credit mortgage as they will likely have an idea of which bad credit mortgage lenders will be willing to lend to you based on the bad credit you have.

Check your credit score

The first thing you should do before looking for a bad credit commercial mortgage would be to check your credit score.

If you are unsure of what your credit score is then you should check your credit score from the four credit bureaus in the UK: Experian, Crediva, Equifax and Transunion.

Some of these credit bureaus may charge you a fee to view your credit report so what you can alternatively do is request a statutory credit report which is a free credit report which each credit bureau must provide to you upon you requesting it.

Alternatively, you can also use credit score services such as Checkmyfile and Clearscore to check your credit report.

Higher mortgage rates

If you have bad credit then getting a commercial mortgage will be much harder as the mortgage lenders which may offer bad credit commercial mortgages may be limited. This means the mortgage rates offered to you may be higher as there won’t be much competition in this segment of the commercial mortgage market. 

This means your bad credit commercial mortgage could potentially be hundreds of pounds higher than someone with a good credit score. 

Lower loan to value rates

Bad credit commercial mortgage lenders will offer lower loan to value rates as they look to reduce their exposure to the mortgage and hence you will need to put down a much larger mortgage deposit.

You can expect a loan to value rates of around 60 to 75%. This will mean you have to put mortgage deposits of around 25% to 40% in some cases.

You will also not be able to use any government scheme to help you with the mortgage deposit as this is a commercial mortgage and not a residential mortgage. 

Some of the government schemes you will miss out on include:

  • Lifetime ISA– gives you a government bonus of £1,000 if you save the maximum £4,000 a year.
  • Help to buy ISA– gives a maximum bonus us £3,000 if you save the maximum allowed of £12,000. Before you get either you should consider which is better. Lifetime ISA vs Help to buy ISA.
  • Help to buy equity loan- gives you up to 40% as a 5-year interest-free equity loan. You begin to pay interest at 1.75 % after the fifth year and 1% plus RPI for every year thereafter.
  • Shared ownership- You can buy between 25% to 75% of the property initially with a shared ownership mortgage and then buy more using a staircasing mortgage.
  • Armed forces help to buy- similar to the help to buy equity loan but specific for the armed forces personnel giving them an increased chance of acceptance.
  • Rent to buy- This is the right to buy scheme on which this guide is currently discussing. A different marketing name is just used. Watch out for this when shopping to avoid missing out on eligible properties due to confusion.
  • Right to buy- allows you to buy your home at a discount price.
  • Preserved right to buy- same as above.
  • Right to acquire- same as above.

Depending on where you live, you may also be able to take advantage of home buying schemes provided by your local council. Example: In Norwich, the local councils provide the Norwich home options scheme.

Improve your credit score

Before you apply for a bad credit commercial mortgage there are a few things which you may be able to do in order to build credit and increase your credit score.

You should ideally start doing these things a few months before you apply for a bad credit commercial mortgage but if you can then you should do this a few years prior as it may take a whole before you begin to see the effects of the good credit behaviour you are practising.

Some of the ways you can build your credit score include:

Get a credit builder credit card to show good credit behaviour

Get a credit builder credit loan to show good credit behaviour

Get a  secured credit card

Register to be on the electoral roll

Keep your credit accounts open for as long as possible

Keep your credit utilization below 30%

Report your rent payments to the credit bureau

Avoid missing credit repayments

Avoid late credit repayments

Avoid defaulting on any of your credit accounts

Avoid making too many credit applications in a short time

Avoid being rejected for credit

Avoid payday loans

If you are able to get a bad credit commercial mortgage then you should ensure you continue to make your monthly mortgage repayments on time. This will allow you to then go on and increase your credit score. This could be incredibly useful as it could potentially open you to much cheaper mortgage rates when you decide to remortgage.

Keep it simple

The worse thing you can do if you have bad credit and need a commercial mortgage is to overcomplicate things. E.g buying a non-standard construction building. Keeping things very simple may make it much easier for the mortgage lender to approve you for the mortgage.

Self-employed bad credit commercial mortgage

If you are self-employed and you want to get a bad credit commercial mortgage you may find that your choices are even further limited as self-employed borrowers usually face scrutiny from mortgage lenders who loo to scrutinize the reliability of their income and ins some cases do not take into account all of their income. 

Some mortgage lenders will only take up to 70% of the self-employed borrower’s income into consideration and this means that they are essentially only able to borrow less than if their full income was taken into consideration when considering their mortgage affordability.

If you are self-employed and want to take out a bad credit commercial mortgage then you may indeed be able to get a mortgage lender to lend to you but you may need the help of a self-employed mortgage broker who has some experience of bad credit commercial mortgages and their lenders.

Some of the documents you may need to submit with your bad credit commercial mortgage  application if you are self-employed include:

Self-employed accounts for 3 years. ( most mortgage lenders will request at least 3 years but there are some who may accept a minimum of 12 months)

Accountants certificate for mortgage

Your SA302 tax calculation form

3 months worth of bank statements(the past 3 months) 

Your tax return documents

Your company accounts if you work under a company

Your contract with your employers if you are a contractor

Your CV

Documents you need for a bad credit commercial mortgage

Below are some of the documents you may need for a bad credit commercial mortgage:

3 months worth of payslips

3 months worth of bank statements

Your identification documents such as your driving license or passport

Your CV( in some cases, the mortgage lender may look at your experience in the industry when lending to you. This could put you in good favour even if you have bad credit.)

How much can you borrow for a bad credit commercial mortgage?

The amount you may be able to borrow for a bad credit commercial mortgage will depend entirely on the mortgage lenders lending criteria. 

This means how much of your income the mortgage lender attributes yo your mortgage affordability assessment, your credit score, your mortgage deposit and the mortgage lenders income multiple which determines the maximum amount they may be able to lend to you.

When looking at if and how much they could lend to you, the mortgage lender will assess the viability and potential profitability of your project and take this account when making a lending decision.

Bad credit commercial mortgage calculator

If you want to see how much you could potentially borrow then you may want to use any of the bad credit commercial mortgage calculators which are available.

This calculators re only there to give you a guide and do not necessarily reflect what the mortgage lender may offer you or what you may truly be able to borrow.

FAQs: Bad credit commercial mortgage

Below are some of the most frequently asked questions about bad credit commercial mortgages.

Can I get a commercial mortgage with bad credit?

Yes, you can get a commercial mortgage with bad credit but this depends on the type of bad credit, how long you have had it for and the severity of it. There are bad credit mortgage lenders who will lend to you and bad credit mortgage brokers who may be able to help you get a bad credit commercial mortgage.

How much deposit do I need for a commercial mortgage?

You will usually need a deposit of around 25% to 40% of the property price on a commercial mortgage. The mortgage deposit requirement is much higher due to the mortgage lenders  increased risk

Can you get a mortgage on commercial property?

Yes, you can geta a mortgage on a commercial property. There are mortgage lenders who lend on commercial property. You can expect to pay an increased mortgage deposit in comparison to residential mortgages.

Getting a bad credit commercial mortgage

You may want to consider using an independent mortgage broker to get a bad credit commercial mortgage. Bad credit commercial mortgage brokers will have much more experience in regards to which mortgage lenders may be more willing to lend to you based on your circumstances. 

Mortgage brokers are important as they can access mortgage products from across the whole of the market in some cases. This could be over 11,000 mortgage products. This may have some advantages than going directly to a mortgage lender.

A mortgage broker will look to understand your financial circumstances and then provide recommendations on which mortgage products may be suitable for you.

After giving you these mortgage recommendations, most mortgage brokers will seek your consent to apply for a mortgage in principle.

This will allow you to shop for your home easier as more estate agents and sellers may take you seriously or it will give you confidence that your remortgage is indeed a possibility before you make a full mortgage application. Once you have found a home you want to buy or are satisfied with the mortgage offer for your remortgage then the mortgage broker will then look to get you a mortgage offer.

This will come with a key facts illustration document which details out the features of your mortgage including how much you will pay per month if there are any limits such as early repayment fees, or annual overpayment limits.

If you are happy with everything you can then go on to secure your mortgage with the help of a conveyancer.

Your conveyancer will manage the legal searches on the property to ensure there aren’t any issues with it, they will oversee the sales agreement to ensure it is in your best interest, they will manage the transfer of mortgage funds, exchange contracts with the seller or their conveyancer and set a completion date with the seller or their conveyancer.

In this brief guide, we discussed what a bad credit commercial mortgage is. If you have any questions or comments please let us know.

John Bate

John has 22 years of experience in financial services. This spans across financial research, financial services (As a qualified mortgage broker and underwriter), financial trading and sales at global investment banks. While working as a publishing research analyst, he covered European bank credit and advised institutional clients on investment strategies at both JP Morgan and Societe Generale. John has passed all three levels of the CFA (Chartered Financial Analyst) programme.