Commercial mortgage deposit (A guide)
By
HuutiMoney
In this brief guide, we are going to discuss how much you need for a commercial mortgage deposit.
Getting a commercial mortgage is much more different than when you need to get a residential mortgage and this is especially the case with the commercial mortgage deposit.
If you are considering getting a commercial mortgage then this guide focuses on raising a commercial mortgage deposit, how much you will need to raise, what factors affect how much you need to raise and the size you should aim for your commercial mortgage deposit.
We will also discuss how to get a commercial mortgage with the minimum mortgage deposit required.
How Much Deposit Do I Need for a Commercial Mortgage?
To get a commercial mortgage you will need a deposit of between 25% and 40% based on the level of risk the mortgage lender feels the commercial investment you are making is to them.
The amount of commercial mortgage deposit you may need will depend on a few factors including:
Your experience in commercial investments
The type of business mortgage you want
Your credit score
Business mortgage affordability
The type of commercial investment
Your experience in commercial investments
When considering you for a commercial mortgage the mortgage lender will want to know how experienced you are with commercial investments.
Some commercial mortgage lenders will expect you to have at least 2 to 3 years of experience.
If you had had experience as buy to let investor and you currently have a portfolio of investments then the mortgage lender will be more relaxed about your commercial mortgage and may set a loan to value which is favourable to you such as 80% or 85%.
This means you will need to put a commercial mortgage deposit of between 15% and 20%.
There are however specialist commercial mortgage lenders who will lend to people who are first-time investors.
The type of business mortgage you want
There are two main types of business mortgages and the type you choose will determine what sort of commercial mortgage deposit the mortgage lender may require from you.
There are two types of business mortgages:
Owner-occupier mortgages
Commercial investment mortgage
Owner-occupier mortgages
Owner-occupier mortgages are mortgages where the borrower trades out of the premises.
Owner-occupier mortgages will usually require a mortgage deposit of around 20% as the mortgage lenders will only offer loan to values of up to 80%.
Commercial investment mortgage
Commercial investment mortgages are mortgages where you let out the building to another business to trade out of.
Commercial investment mortgages will require a bigger commercial mortgage deposit of at least 25% as most mortgage lenders will only offer a loan to value of up to 75%.
If you want to reduce the commercial mortgage deposit amount you may need then you could consider providing loan security.
Your credit score
Your credit score is a big factor in how much commercial mortgage deposit the mortgage lender may require you to out down.
If you have a good credit score then you could expect a loan to value close to 80% and maybe 85%.
However, if you have bad credit then you can expect a loan to value of around 65% to 75% depending on the type of bad credit you have and how long it has been.
Each commercial mortgage lender will look at commercial mortgage applications on a case by case basis but bad credit is usually considered to include the below:
A CCJ
An IVA
A debt management plan
A default
A bankruptcy
A home repossession
Depending on the level of bad credit the mortgage lender may also require you to put down collateral.
Business mortgage affordability
All commercial mortgage lenders will assess your business mortgage affordability to see if your business will be able to cover the monthly mortgage repayments for the commercial mortgage.
There is no industry standard on this but most mortgage lenders will look to see that the businesses after-tax profits are sufficient.
Commercial mortgage lenders will also look at the businesses earnings before interest, tax, depreciation and amortisation (EBITDA).
If all checks out then you may be able to get the minimum commercial mortgage deposit required.
The type of commercial investment
Commercial mortgage lenders will generally look at the type of commercial investment when determining the type of commercial mortgage deposit.
The figures below are only for guidance as each mortgage lender will have their own criteria but generally speaking, commercial mortgage lenders will require these types of mortgage deposits:
| Pubs | 30% mortgage deposit |
| Nursing homes | 30% mortgage deposit |
| Holiday lets | 30% mortgage deposit |
| Houses of Multiple Occupancy (HMO) | 30% mortgage deposit |
| Land | 50% mortgage deposit |
| Hotels and Bed and Breakfasts | 30% mortgage deposit |
| Self-build | 45% mortgage deposit |
Can you get a commercial mortgage with no deposit?
Yes, there are some commercial mortgage lenders who will give you a commercial mortgage with no deposit.
This means you will get a commercial mortgage with 100% loan to value.
To get a commercial mortgage with no deposit you will usually have to put up some collateral such as other properties you own with sufficient equity.
The collateral you put up must have equity which is equal or more than the commercial mortgage deposit that may have been required from you.
Putting up collateral rather than a commercial mortgage deposit is a bit risky as if you fail to keep up your monthly mortgage repayments then you could potentially lose your collateral.
How to get a low deposit commercial mortgage?
To get a low deposit commercial mortgage you will want to ensure you have a good credit score and your business profits look healthy.
You may then need to put down suitable collateral to convince the mortgage lender to offer you a higher loan to value and hence a smaller mortgage deposit requirement.
For any commercial mortgage lender to agree to this you will need to have sufficient equity in any collateral you put down.
The equity may need to be more or equal to the amount which your commercial mortgage deposit was reduced by.
Putting your home or other assets as collateral can be very risky as if you default on the mortgage then you could lose your collateral.
Use a commercial mortgage broker
You may want to consider using an independent mortgage broker to get a mortgage.
Commercial 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 commercial 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 commercial property easier as sellers may take you seriously or it will give you confidence that your mortgage is indeed a possibility before you make a full mortgage application.
Once you have found a commercial property 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.
Commercial mortgage calculator
You can use a commercial mortgage calculator to see what your monthly mortgage repayments on your commercial mortgage could look like.
This calculator is for guidance only and may not reflect your true mortgage affordability.
FAQs: Commercial mortgage deposit
What is the current interest rate for commercial mortgages?
Commercial mortgage interest rates range from 2% over the Bank of Englands base rate.
The commercial interest rates tend to not be based on any loan to value band as residential mortgages are.
Commercial mortgage interest rates and fees will be based on a consideration of the factors mentioned above.
How does a commercial mortgage work?
Commercial mortgages are mortgages which allow you to buy business premises for you to rent out or for you to reside in as your place of business
In this brief guide, we discussed how much you need for a commercial mortgage deposit.
If you have any questions or comments please let us know.
If you need financial advice and you live in the UK then you could contact the Money Advice service over the phone or via chat for impartial advice.
You can also contact the debt charity “Step Change” if you are in debt and need help.
