Commercial buy-to-let mortgages

Discover the key to successful property investment with this in-depth guide on commercial buy-to-let mortgages.
Confused about commercial buy-to-let mortgages? Schedule a free, no-obligation call with one of our experienced advisors to get your questions answered.
Commercial buy-to-let mortgages

Navigating the landscape of commercial buy-to-let mortgages can seem daunting, especially if you’re new to commercial property investment. These types of mortgages differ significantly from their residential counterparts, with unique terms, conditions, and eligibility criteria. Whether you’re an established property investor considering diversifying your portfolio or a novice exploring opportunities in the commercial property market, understanding the ins and outs of commercial buy-to-let mortgages is key to making informed and strategic investment decisions.

In the following guide, we’ll explore various aspects of commercial buy-to-let mortgages, from basic definitions and eligibility requirements to more complex matters such as interest rates, tax implications, and potential pitfalls to avoid. We’ll delve into the benefits and potential risks, outline the application process, and provide you with the essential knowledge you need to confidently embark on your journey into commercial property investment. Whether your goal is to expand your investment horizons, diversify your income streams, or simply to gain a better understanding of the uk’s commercial property market, this guide will serve as a comprehensive resource.

What is a commercial buy-to-let mortgage?

A commercial buy-to-let mortgage is a type of loan designed for individuals or businesses who want to purchase a property with the intention of renting it out to a business rather than to residential tenants. The property in question is generally a commercial property such as an office building, retail space, warehouse, or mixed-use building.

These mortgages are primarily used by landlords and property investors looking to expand their property portfolio with commercial properties. Commercial buy-to-let mortgages are often more complex and come with higher interest rates compared to residential buy-to-let mortgages, primarily due to the increased risk associated with commercial properties.

The mortgage is typically set up so that the rental income from the property covers the mortgage payments. Lenders usually require that this rental income exceeds the mortgage payments by a certain percentage (often around 125-130%) to provide a buffer for any periods where the property might be vacant, or the business tenant is unable to pay rent.

How to get a buy-to-let mortgage on a commercial property

Getting a buy-to-let mortgage on a commercial property is a process that involves several steps.

Here’s a basic guide:

Research the market: First and foremost, it’s important to understand the commercial property market, including the types of properties available, their location, and the potential demand for commercial rentals in that area. Look at trends in the market and get a good idea of the likely rental income and potential return on investment.

Find a suitable commercial lender: Not all lenders offer commercial buy-to-let mortgages, so you’ll need to research which financial institutions do. Commercial mortgage brokers can be a helpful resource, as they have access to a wide range of lenders and can guide you toward those most likely to approve your application.

Will the property generate enough rent?: To secure a commercial buy-to-let mortgage, you’ll need to demonstrate that the property will generate sufficient rental income to cover the mortgage payments and any associated costs. Lenders typically require the rental income to be 125-130% of the mortgage payments.

Do you already have a commercial tenant?: If you already have a tenant lined up for the property, this could increase your chances of being approved for a mortgage. The lender may require information about the tenant’s business and their ability to pay the rent. Having a tenant with a good financial track record could make your application more attractive to lenders.

Applying for the mortgage: Once you’ve found a suitable lender and property and are confident in its rental income potential, you can proceed to the application stage. This will involve providing various pieces of information, including:

  • Details about the property and its value.
  • Your personal financial information and credit history.
  • Business plan or rental income projections for the property.
  • Information about the prospective tenant (if you have one lined up).
  • Some lenders may also require a professional valuation and survey of the property.

Seek professional advice: It’s highly recommended to seek advice from a financial adviser or mortgage broker before proceeding with a commercial buy-to-let mortgage. They can provide guidance based on your individual circumstances and help you navigate the complexities of the process.

Remember that commercial buy-to-let mortgages can be more complex and risky compared to residential ones, so it’s crucial to do your due diligence and understand all the terms and conditions before proceeding.

What are the eligibility criteria for a commercial buy-to-let mortgage?

Eligibility criteria for a commercial buy-to-let mortgage can vary between lenders, but here are some common criteria that you can expect:

Income and credit history: Your personal income and credit history will usually be taken into account, even though the primary focus is on the rental income of the property. A good credit rating is often required, although some lenders may consider applicants with a less-than-perfect credit score.

Rental income: The potential rental income from the property is crucial. Lenders typically require the expected rental income to be 125-130% of the mortgage repayments. This ratio, often referred to as the interest cover ratio (ICR), may be higher for higher tax rate borrowers due to tax relief changes.

Deposit: You’ll typically need a substantial deposit, generally between 25-40% of the property’s purchase price, as most lenders offer a loan-to-value (LTV) ratio of 60-75%.

Experience: Some lenders prefer borrowers with prior experience in property investment or in being a landlord. This isn’t always a strict requirement, but it may make your application more attractive.

Age: There are often age restrictions when applying for a commercial buy-to-let mortgage. While specifics can vary, many lenders require borrowers to be over 21 and under 75 at the end of the mortgage term.

Property condition and type: The condition and type of the property will also be assessed. Lenders will be looking for properties in good condition that are easy to rent out. Some types of commercial properties may be seen as higher risk than others.

Business status: If you’re applying as a business, you may be required to be set up as a special purpose vehicle (SPV), typically a limited company set up for the purpose of property investment.
Existing tenant: if the property already has a reliable tenant, this could increase your chances of mortgage approval.

Please note this is a general overview, and specific eligibility criteria can vary between lenders. Always check with potential lenders about their specific requirements or consider seeking advice from a mortgage broker or financial advisor.

How much can you borrow?

The amount you can borrow with a commercial buy-to-let mortgage largely depends on the rental income the property is expected to generate, the value of the property, and your financial circumstances.

Most lenders require the rental income to be at least 125% to 130% of the mortgage repayments, which can limit the maximum amount you can borrow. For example, if the property is expected to generate £2,000 per month in rent, and the lender requires 125% coverage, the maximum monthly mortgage repayment they would typically allow would be £1,600 (£2,000 divided by 1.25).

In addition, the loan-to-value (LTV) ratio is also a factor. This is the percentage of the property’s purchase price that the lender is willing to loan. For commercial buy-to-let mortgages, LTV ratios typically range from 60% to 75%. So, for a property worth £400,000, you might be able to borrow between £240,000 (60% LTV) and £300,000 (75% LTV).

However, lenders will also consider your credit history, income, and sometimes your experience as a landlord, which can all influence the amount you can borrow.

It’s important to consider not only how much you can borrow but also how much you can comfortably afford to repay. Seeking advice from a mortgage broker or financial advisor can be helpful to understand your borrowing capacity.

What are the average interest rates for commercial buy-to-let mortgages?

The interest rates for commercial buy-to-let mortgages typically range from around 4% to 8%, but this can vary significantly based on a number of factors, including:

  1. Loan-to-value (LTV) ratio: the proportion of the property value that you’re looking to borrow can influence the interest rate. The lower the LTV, the lower the risk for the lender, which can result in a lower interest rate.
  2. Rental income: The anticipated rental income from the property will impact the lender’s assessment of risk and could influence the interest rate. A property with solid, reliable rental income may attract a lower interest rate.
  3. Credit history: The better your credit history, the more likely you are to receive favourable interest rates.
  4. Experience as a landlord: Those with more experience in managing commercial properties or with a portfolio of properties might be offered better rates.
  5. Length of the loan term: The term of the mortgage can also affect the interest rate, with shorter terms often offering lower rates.
  6. The state of the economy: Broader economic conditions and the Bank of England’s base rate also influence interest rates.

How can I find the best rates for a commercial buy-to-let mortgage?

Finding the best rates for a commercial buy-to-let mortgage will involve careful research and preparation. Here are some steps to consider:

  1. Understand your financial position: before you start looking for the best rates, it’s crucial to have a clear understanding of your financial situation, credit history, and the potential rental income of the property you’re considering. These factors will all affect the rates you’re offered.
  2. Comparison sites: many websites compare mortgage rates from a variety of lenders. Keep in mind that while these sites can provide a good starting point, they might not cover all available lenders and may not take into account all the unique factors of a commercial buy-to-let mortgage.
  3. Contact lenders directly: you can also approach lenders directly. This can be time-consuming, but it could potentially yield better rates, especially if you already have a good relationship with the lender.
  4. Use a commercial mortgage broker: brokers have access to a wide range of lenders, some of which may not be available to the general public. They can also advise you on the best deals based on your specific circumstances. Remember to consider the broker’s fees when calculating the overall cost.
  5. Negotiation: depending on the lender, there may be room to negotiate the interest rate, particularly if you have a strong credit history and a reliable rental income.
  6. Seek professional advice: consult with a financial advisor. They can provide guidance based on your specific circumstances and help you navigate the complexities of the mortgage market.

While finding the best rate is important, it’s also crucial to understand the other terms of the mortgage, such as the length of the loan, the type of interest rate (fixed, variable, or tracker), and any fees or penalties associated with the loan. Make sure you understand the full terms and conditions before agreeing to a mortgage.

Commercial buy to let mortgage fees

Commercial buy-to-let mortgages often come with several types of fees. It’s important to consider these when assessing the overall cost of the mortgage. Here are some of the fees you might encounter:

  1. Arrangement fee: this is charged by the lender for setting up the mortgage. It can vary but often ranges from 1-2% of the loan amount. In some cases, this fee can be added to the mortgage, but doing so will increase the amount of interest you pay over the term of the loan.
  2. Valuation fee: before approving a mortgage, the lender will typically require a professional valuation of the property to determine its market value and the potential rental income. The cost of the valuation will usually depend on the property’s value.
  3. Legal fees: these are the costs of the legal work involved in the mortgage process. This can include conveyancing fees for the transfer of property ownership, as well as other legal costs.
  4. Broker fee: if you’re using a mortgage broker, they may charge a fee for their service. This could be a flat fee, a percentage of the loan amount, or a combination of both.
  5. Early repayment charges (ERCs): If you repay the mortgage early, either by paying off the balance or by switching to a different mortgage, you may be required to pay an early repayment charge. This can be a significant cost, so it’s important to check the terms of the mortgage before you proceed.
  6. Exit fees: Some lenders charge a fee when you repay your mortgage, even if you’re not repaying it early.

Fees for commercial buy-to-let mortgage can significantly increase the overall cost of a mortgage. It’s important to consider these when comparing different mortgages and budget for them when considering how much you can afford to borrow.

What types of commercial properties can I buy with a buy-to-let mortgage?

Commercial buy-to-let mortgages can be used to purchase a wide range of commercial properties. However, the exact types of properties that can be financed will depend on the lender’s policies. Here are some types of commercial properties that are commonly financed with buy-to-let mortgages:

  1. Offices: These can range from small office units to large office buildings.
  2. Retail units: This can include high street shops, shopping mall units, and standalone retail buildings.
  3. Mixed-use properties: these are properties that have both a commercial and residential component, such as a shop on the ground floor with flats above.
  4. Industrial units: This includes warehouses, factories, and other industrial premises.
  5. Restaurants and cafés: These can range from small cafes to larger restaurants or pub buildings.
  6. Leisure facilities: This could include gyms, cinemas, or even hotels.
  7. Healthcare facilities: Properties such as care homes, medical practices, or dental offices can also be financed.
  8. Agricultural land: Some lenders will also finance the purchase of farmland or other agricultural properties.

For certain types of properties, specialist lenders may be more suited. It can be helpful to work with a broker who specialises in commercial mortgages to help you find the most appropriate lender for your needs.

Will I need a commercial lease for my tenants?

Yes, typically, you will need a commercial lease for your tenants when renting out commercial property. This is crucial to protect both your rights as a landlord and the rights of your tenant. It’s also important because most commercial mortgage lenders require evidence of a solid rental agreement before approving the loan.

A commercial lease, also known as a business tenancy agreement, differs from a residential lease in several ways. It is typically more complex and more flexible, as it needs to account for a wider range of potential uses for the property.

Key elements of a commercial lease usually include:

  1. Term of the lease: This outlines the duration of the lease agreement. Commercial leases can vary in length but are often between 3 to 15 years.
  2. Rent: The lease should specify the amount of rent when it’s due and provisions for rent increases.
  3. Responsibility for repairs and maintenance: This sets out who is responsible for repairs and maintenance of the property. In many commercial leases, the tenant is responsible for interior maintenance and repairs.
  4. Use of the property: The lease should clearly state what the property can be used for.
  5. Break clauses: These are terms that allow either party to end the lease early.
  6. Insurance responsibilities: The lease should outline who is responsible for insuring the property.
  7. Deposit and guarantees: Any requirements for a security deposit or rent guarantees should be included in the lease.

Do I need a solicitor?

Yes, it’s highly recommended that you engage the services of a solicitor when undertaking a commercial buy-to-let mortgage. The legal aspects of purchasing a commercial property and arranging a commercial mortgage can be complex, and a solicitor can ensure that all legal requirements are met and that your interests are protected.

Here are some of the key areas where a solicitor can assist:

  1. Property purchase: the solicitor can handle the conveyancing process, which includes conducting searches, checking the title of the property, handling contracts, and managing the exchange of money.
  2. Mortgage process: They can also help review your mortgage offer, explaining the terms and conditions to ensure that you fully understand your obligations.
  3. Commercial lease: If you’re planning to let the property, a solicitor can help draft a lease agreement, ensuring that it is legally sound and protects your rights as a landlord.
  4. Legal compliance: They can provide advice on compliance with relevant laws and regulations, such as planning permissions and health and safety regulations.
  5. Dispute resolution: In case any disputes arise, such as those relating to the property purchase or the terms of the lease, a solicitor can provide advice and representation.

Given the potentially significant financial investment involved in purchasing a commercial property and the complexity of commercial property law, working with a solicitor can provide valuable peace of mind. Be sure to find a solicitor who has experience in commercial property transactions for the best guidance.

What type of mortgage is used for a mixed-use property?

For mixed-use properties, which combine both residential and commercial elements, you’ll typically need a specialist type of mortgage. The exact type of mortgage needed can depend on the proportion of residential to commercial use.

If the property is primarily residential with a small commercial element, you may be able to secure a standard buy-to-let mortgage or a semi-commercial mortgage. However, if the commercial element is significant, a commercial mortgage, including a commercial buy-to-let mortgage, would likely be required.

It’s worth noting that not all lenders offer mortgages for mixed-use properties, given the increased complexity and potential risk. Those that do may apply stricter lending criteria, and the interest rates could be higher than for standard residential mortgages.

The valuation for a mixed-use property can also be more complex, as it needs to take into account both the potential rental income from the residential and commercial parts of the property, as well as the potential for vacant periods in the commercial units.

How does a commercial buy-to-let mortgage differ from a residential one?

Commercial buy-to-let mortgages and residential mortgages differ in several key ways, reflecting the different purposes, risks, and regulatory frameworks associated with commercial and residential properties. Here are some of the main differences:

  1. Purpose: A residential mortgage is typically used for properties where the owner or their family will live. A commercial buy-to-let mortgage, on the other hand, is for properties intended to be rented out for commercial use, such as offices, shops, or restaurants.
  2. Lending criteria: The lending criteria for commercial mortgages are often more stringent than for residential ones. Lenders will consider the potential rental income from the property and the borrower’s experience in property investment and often require a higher deposit (often around 25-40% for commercial mortgages, compared to 5-20% for many residential mortgages).
  3. Interest rates and fees: Interest rates and fees for commercial mortgages can be higher than for residential mortgages, reflecting the higher risk associated with commercial properties.
  4. Loan term: Commercial mortgages often have a shorter term than residential mortgages. A typical commercial mortgage might last for 15 years, while residential mortgages can last for 25 years or more.
  5. Repayment structure: With commercial mortgages, including buy-to-let, it’s more common to have an interest-only period, where only the interest is paid, with the capital repaid at the end of the term, often through the sale of the property or refinancing.
  6. Regulation: Residential mortgages are regulated by the financial conduct authority (fca) in the uk, which provides certain protections for borrowers. Commercial mortgages are generally not subject to the same level of regulation.

What are the benefits of a commercial buy-to-let mortgage for a UK landlord?

Commercial buy-to-let mortgages can offer a range of benefits for uk landlords, particularly those looking to diversify their property portfolios or seeking a potentially higher yield. Here are some key benefits:

  1. Higher potential yields: Commercial properties often offer higher rental yields compared to residential properties, particularly in areas with strong commercial demand.
  2. Longer lease terms: Commercial tenants often sign leases for longer terms than residential tenants, sometimes as long as 5-15 years. This can provide the landlord with a more stable, long-term rental income.
  3. Tenant covers costs: in many commercial leases, the tenant is responsible for costs such as property maintenance, repairs, and insurance. This can significantly reduce the landlord’s ongoing expenses.
  4. Vat registration benefits: If you choose to register for vat, you can reclaim the vat on your commercial property purchase and related costs. However, you’ll also need to charge vat on the rent, which could impact tenants who aren’t vat registered.
  5. Diversification: Adding commercial properties to a portfolio that previously consisted of residential properties can help diversify risk.
  6. Potential for capital growth: In addition to rental income, there can also be potential for capital growth if the value of the commercial property increases over time.

Remember, while there can be significant benefits to commercial buy-to-let investments, they can also carry higher risks compared to residential properties. These include longer void periods if a tenant leaves, potentially more complex legal and regulatory requirements, and the fact that commercial property values and demand can be more directly affected by the state of the economy.

What are the common pitfalls to avoid when applying for a commercial buy-to-let mortgage?

When applying for a commercial buy-to-let mortgage, there are a few common pitfalls that prospective landlords should be aware of:

  1. Inadequate research: It’s important to thoroughly research the commercial property market, understand the potential rental income, and have a solid business plan in place. Lenders will want to see evidence of potential profitability before approving a commercial mortgage.
  2. Underestimating costs: While commercial properties can offer higher rental yields, they can also come with higher costs, including higher interest rates, larger deposit requirements, and additional legal and survey fees. There may also be costs associated with longer void periods if it takes time to find a suitable tenant.
  3. Not factoring in rent arrears: Commercial tenants, like residential ones, may fall into rent arrears. It’s important to factor in this risk and consider measures to mitigate it, such as rent guarantees or insurance.
  4. Overlooking the impact of economic changes: The demand for commercial properties can be significantly affected by the wider economy. Economic downturns can affect businesses’ ability to pay rent or even stay in business, which in turn can affect your rental income.
  5. Not considering all lending options: There are a variety of lenders who offer commercial mortgages, including high street banks, specialist lenders, and challenger banks. Different lenders may offer different interest rates and terms, so it’s important to consider all options to find the best deal.
  6. Neglecting legal aspects: Commercial property transactions can be complex and subject to a range of legal considerations. It’s important to work with a solicitor experienced in commercial property to ensure that all legal aspects, including the lease agreement, are properly handled.
  7. Not seeking professional advice: Given the complexities and potential risks associated with commercial buy-to-let mortgages, it’s highly recommended to seek advice from a financial advisor or a mortgage broker specialising in commercial properties before proceeding.

Avoiding these pitfalls can help ensure a smoother process when applying for a commercial buy-to-let mortgage and increase the chances of a successful investment.

What are the tax implications of having a commercial buy-to-let mortgage?

There are several tax implications to consider when you have a commercial buy-to-let mortgage in the uk:

  1. Income tax: the rental income you receive from your commercial property is subject to income tax. However, certain expenses related to the property can be deducted before tax, including mortgage interest, maintenance costs, and professional fees, among others.
  2. Capital gains tax (CGT): if you sell your commercial property for more than you paid for it, you may have to pay capital gains tax on the profit. The rate of CGT for commercial property can vary depending on your overall taxable income. There were some exemptions and reliefs available that may reduce the CGT payable, such as entrepreneurs’ relief, but you would need to check the current rules with a tax advisor or the HMRC website.
  3. Stamp duty land tax (SDLT): when you purchase a commercial property, you may be liable to pay stamp duty land tax. The rate of SDLT on commercial properties is usually based on the purchase price, with different rates applied to different portions of the price.
  4. Value added tax (VAT): some commercial properties are subject to vat at the standard rate on the purchase price. However, you may be able to reclaim the vat if you’re vat registered.
  5. Corporation tax: if you hold your commercial property within a limited company, any profits from rental income or selling the property will be subject to corporation tax instead of income tax and capital gains tax.
  6. Annual tax on enveloped dwellings (ATED): ATED is a yearly tax payable by companies that own uk residential property valued above a certain threshold. It’s unlikely to apply if your property is purely commercial, but it could apply to mixed-use properties, so it’s worth checking the rules.

These are general points to consider, but tax law can be complex and frequently changes. Therefore, it’s essential to seek advice from a tax advisor or accountant who is familiar with property taxation to understand fully the tax implications for your specific situation. They can help you structure your investment in the most tax-efficient way possible and make sure you’re meeting all your tax obligations.

Can I use a commercial buy-to-let mortgage to buy an HMO (House in multiple occupation)?

No, a commercial buy-to-let mortgage is not typically used to purchase a house in multiple occupation (HMO).

HMO properties, which are residential properties rented out to three or more people forming more than one ‘household’ (such as students or professionals sharing a house), fall under a different category to commercial properties. Commercial properties are those which are used for business purposes, such as offices, shops, or industrial units.

For HMO properties, a specific type of mortgage product, known as an HMO mortgage, is generally required. Lenders often view hmos as higher risk than standard buy-to-let properties due to factors such as higher tenant turnover, increased wear and tear, and more complex regulation. As a result, HMO mortgages can have stricter lending criteria and higher interest rates compared to standard buy-to-let mortgages.

However, if the HMO is particularly large (for example, it’s a large block of flats or a purpose-built student accommodation block), it might be classed as a commercial property, and a commercial mortgage could be required.

As with any mortgage, it’s important to seek advice from a mortgage broker or financial advisor before proceeding. They can help you understand the specific requirements and find the best mortgage product for your needs.

What are the pros and cons of using a mortgage broker for a commercial buy-to-let mortgage?

Utilising a mortgage broker for a commercial buy-to-let mortgage can offer a number of advantages, but there can also be potential drawbacks. Here are some to consider:


Access to a wide range of lenders: Brokers have relationships with a wide range of lenders, including those that don’t directly deal with consumers. This means they can provide access to a broader selection of mortgage products than you might find on your own.

Expertise: Commercial mortgages can be complex. A broker with experience in this area can provide valuable advice and guidance, helping you navigate the process and understand the terms of different mortgage offers.

Time-saving: A broker can save you a significant amount of time by doing the research and comparison for you. They’ll also handle much of the paperwork, making the application process easier.

Negotiation: brokers can often negotiate better terms or rates on your behalf due to their established relationships with lenders.

Tailored advice: A broker can help you find the most suitable mortgage product for your specific circumstances and needs.


Fees: brokers charge fees for their services. Some charge a flat fee, some a percentage of the loan, and some may charge both. It’s important to understand these fees upfront.

Limited lender range: Some brokers might not have access to all potential lenders, potentially limiting your options.

Potential bias: While regulations require mortgage brokers to act in the best interests of their clients, there can be concerns about potential bias if a broker receives a higher commission from certain lenders.

Complexity: While a broker can simplify the mortgage process, introducing an additional party can also potentially add another layer of complexity to communications.

Can I remortgage commercial buy-to-let properties?

Yes, you can remortgage commercial buy-to-let properties. The process is somewhat similar to remortgaging a residential property.

Remortgaging involves replacing your current mortgage with a new one, either with your existing lender or a new one. This could be done for several reasons:

  1. Better interest rate: If interest rates have fallen or your property has increased in value, you may be able to secure a lower interest rate with a new mortgage, reducing your monthly payments.
  2. Release equity: If the value of your commercial property has increased, remortgaging can allow you to release some of the equity you’ve built up. This could provide you with a lump sum of cash for various purposes, such as investing in additional properties, refurbishing existing properties, or for other business needs.
  3. Change in mortgage terms: You might want to change other terms of your mortgage, such as switching from an interest-only to a repayment mortgage or extending or reducing the term.
  4. Consolidation: If you have multiple commercial properties, you might want to consolidate them under a single, larger mortgage.

However, it’s important to consider the potential costs involved in remortgaging, such as early repayment charges on your current mortgage, valuation fees, legal fees, and arrangement fees for the new mortgage.

What are the risks of investing in commercial buy-to-let properties?

While investing in commercial buy-to-let properties can offer potential benefits, such as higher rental yields and longer lease terms, it also carries certain risks:

  1. Economic vulnerability: the demand for commercial properties can be more sensitive to economic downturns compared to residential properties. In times of economic recession, businesses may downsize or close, leading to increased vacancy rates and potentially reduced rental income.
  2. Longer void periods: it can often take longer to find tenants for commercial properties compared to residential ones, which can result in longer periods without rental income.
  3. Dependence on business success: the ability of your tenants to pay their rent is directly tied to the success of their business. If their business struggles or fails, it could impact your rental income.
  4. Complex regulations: the legal and regulatory environment for commercial properties can be complex and may require more time and expertise to navigate. For example, there are specific regulations around commercial leases, and planning permission might be more complex if you want to change the use of the property.
  5. Maintenance costs: While many commercial leases are “full repairing and insuring” leases, where the tenant is responsible for repairs and insurance, this isn’t always the case. If it’s not, the landlord could be responsible for potentially significant maintenance costs.
  6. Liquidity: Commercial properties can be harder to sell than residential properties, especially in a slow market. This could be an issue if you need to sell the property quickly.
  7. Fluctuating property values: Just like residential property, commercial property values can fluctuate. If the value of the property falls, this could reduce your equity and potentially impact your ability to refinance.
  8. Environmental responsibilities: Commercial property owners may be held liable for the cleanup of any environmental contamination on their property, even if it was caused by a tenant or previous owner.

Before investing in a commercial buy-to-let property, it’s important to seek professional advice to understand all the potential risks and benefits and to ensure you’re making an informed decision. A financial advisor or a commercial property expert can provide valuable insight and guidance.

What is a fixed-rate commercial buy-to-let mortgage, and how does it work?

A fixed-rate commercial buy-to-let mortgage is a type of mortgage where the interest rate remains the same for a set period of time. The fixed-rate period can vary, but common terms are 2, 3, 5, or even 10 years.

Here’s how it works:

  1. With a fixed-rate mortgage, the interest rate you pay on your loan will stay the same for the duration of the fixed-rate period, regardless of any changes in the Bank of England base rate or wider market interest rates.
  2. Your monthly repayments will remain the same each month for the duration of the fixed-rate period, which can help with budgeting and cash flow planning.

  3. At the end of the fixed-rate period, your mortgage will usually revert to the lender’s standard variable rate (SVR), which may be higher than your fixed rate. At this point, you may want to look at remortgaging to secure a better rate.
  4. It’s important to be aware that if you want to pay off your mortgage or switch to a different product before the end of the fixed-rate period, you’ll likely have to pay an early repayment charge (ERC), which can be quite substantial.

A fixed-rate commercial buy-to-let mortgage can be a good option if you expect interest rates to rise in the future, as it provides certainty about your monthly repayments. However, if interest rates fall, you could end up paying more than necessary.

Commercial brokers who understand buy to let

When you’re looking to invest in commercial buy-to-let property, hiring a commercial broker who understands this particular field can be hugely beneficial. Here are some factors to consider:

  1. Experience in commercial buy-to-let properties: Not all property brokers will have experience in commercial buy-to-let properties. Make sure to look for a broker with a proven track record in this particular area, as they will understand the unique considerations and complexities involved.
  2. Knowledge of the market: A good commercial broker should have a deep understanding of the local and broader property markets. They can provide insight into market trends, property values, rental yields, and potential growth areas.
  3. Access to lenders: A commercial broker can have relationships with a wide range of lenders, including those that don’t directly deal with consumers. This means they can provide access to a broader selection of mortgage products than you might find on your own.
  4. Negotiation skills: A skilled broker can often negotiate better terms or rates on your behalf due to their established relationships with lenders.
  5. Legal and regulatory understanding: Commercial property investment involves complex legal and regulatory issues. A broker with experience in this field will understand these and can provide guidance.
  6. Due diligence: A commercial broker can help with due diligence, assisting with everything from property valuation to understanding lease agreements.
  7. Time-saving: A broker can save you a significant amount of time by doing the research and comparison for you. They’ll also handle much of the paperwork, making the application process easier.


Can a limited company apply for a commercial buy-to-let mortgage?

Yes, a limited company can apply for a commercial buy-to-let mortgage. In fact, it’s quite common for commercial properties to be purchased through a limited company rather than as an individual. There are certain advantages to this, such as potential tax benefits, but there may also be additional costs and complexities involved. It’s crucial to seek advice from a tax advisor or accountant before proceeding with this kind of arrangement to ensure it’s the best option for your specific circumstances.

Can I get a commercial buy-to-let mortgage if I am a first-time landlord?

While it’s possible for a first-time landlord to get a commercial buy-to-let mortgage, it may be more challenging. Many lenders see first-time landlords as higher risk because they have no track record of managing rental properties. This can mean stricter eligibility criteria and potentially higher interest rates. However, each lender is different, so it’s worth exploring your options and perhaps working with a mortgage broker who has access to a wide range of lenders. It’s also a good idea to gain some experience in the property market, perhaps with residential buy-to-let, before moving into commercial property.

Can I transfer a residential buy-to-let mortgage to a commercial buy-to-let mortgage?

Transferring a residential buy-to-let mortgage to a commercial buy-to-let mortgage typically involves refinancing the property. This is because residential and commercial mortgages are fundamentally different products, with different rates, terms, and eligibility criteria. If you want to convert a residential property to commercial use and change your mortgage accordingly, it’s crucial to get advice from a mortgage broker or financial advisor. Note that changing the use of a property may also require planning permission, and it will likely affect your insurance needs.

How does a rent coverage ratio affect the application?

The rent coverage ratio, often referred to as the debt service coverage ratio (DSCR) in commercial lending, is a measure of the cash flow available to pay current debt obligations. In the context of a commercial buy-to-let mortgage application, it’s typically the ratio of the rental income from the property to the mortgage payments. Lenders use this ratio to assess the risk associated with the loan – if the rental income comfortably covers the mortgage repayments, the loan is seen as less risky.

Most lenders require a minimum rent coverage ratio, often around 125% to 130%, for commercial buy-to-let mortgages. This means the rental income must be at least 125% to 130% of the mortgage repayments. For example, if your mortgage repayments are £1,000 per month, you would need a rental income of at least £1,250 to £1,300 per month to meet this requirement. If the rental income is lower than this, you may find it harder to get a mortgage, or you might be offered less favourable terms.

Is landlord insurance necessary?

While it may not always be a legal requirement, most lenders will require you to have landlord insurance in place as a condition of a commercial buy-to-let mortgage. Landlord insurance typically covers risks like property damage, loss of rent due to an insured event like a fire, and public liability claims. This can provide financial protection for both the lender and the property owner.

For commercial properties, landlord insurance can be more complex than for residential properties. It might need to cover things like commercial lease disputes, damage caused by tenants’ businesses, or loss of rent due to a business interruption event. It’s crucial to ensure you have the right cover for your specific circumstances, and you may want to seek advice from an insurance broker who specialises in commercial properties.

Can I switch lenders during the term of my commercial buy-to-let mortgage?

Yes, it is possible to switch lenders during the term of your commercial buy-to-let mortgage; this process is known as remortgaging. However, it’s important to consider several factors before you decide to do this. If you’re still within an initial fixed, tracker or discount rate period, you could be liable for an early repayment charge (ERC) which can be quite substantial. These charges should be clearly outlined in your mortgage agreement. Additionally, the new lender will also likely require valuation and legal work, which will involve further costs. You should weigh these potential costs against the potential savings from switching before making a decision. It is always advisable to speak with a mortgage broker or financial adviser before remortgaging.

What is the role of a property survey in securing a commercial buy-to-let mortgage?

A property survey plays a critical role in the commercial buy-to-let mortgage process. It provides an independent assessment of the property’s condition and its market value. The survey can highlight any structural issues, maintenance needs or other problems with the property which could affect its value and rental potential. The valuation of the property also determines how much the lender is willing to loan. Lenders generally loan a certain percentage of the property’s value, known as the loan-to-value ratio (LTV). Therefore, a lower valuation than expected might affect how much you can borrow.

What is the maximum loan-to-value (LTV) ratio for a commercial buy-to-let mortgage?

The maximum loan-to-value (LTV) ratio for a commercial buy-to-let mortgage can vary between lenders, the type of property, and the financial strength of the borrower. However, it is typically lower than for residential mortgages due to the perceived higher risk associated with commercial properties. In general, you might expect a maximum LTV of around 70% to 75%, although in some cases, it might be as low as 60%. This means you would need a deposit of between 25% to 40% of the property’s value. It’s worth noting that more favourable terms may be offered to those with a lower LTV, as the risk to the lender is reduced.

Continue Reading