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Commercial buy to let mortgages

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By Pete Mugleston  | Mortgage Advisor Pete has been a mortgage advisor for over 10 years, and is regularly cited in both trade and national press.

Updated: 12th July 2019* | Published: 22nd March 2019

When it comes to property, commercial mortgage investment is a very different kettle of fish to the residential market. It’s a vast category that covers everything from Airbnb to industrial workshops and high street cafes.

Need a little help with your commercial financing? The brokers we work with are experts in finding the perfect lender for the toughest of cases. If you need assistance or friendly advice, just drop us a line and we’ll connect you with them.

Our guide to commercial buy to let mortgages in the UK includes the following topics...

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What’s a commercial buy to let mortgage?

A ‘commercial buy to let mortgage’ (sometimes referred to as a ‘business buy to let mortgage’,a ‘commercial investment mortgage’, or a commercial landlord mortgage) is a kind of mortgage  you will need if you’re planning to let out property to businesses.

It differs from a conventional buy to let mortgage in that it’s only for renting out to businesses, not private tenants. An alternative comes in the (rarer) form of a ‘semi-commercial’ buy to let mortgage, which can be used for rental properties which have simultaneous residential and commercial use.

You don’t have to be a company to get a business mortgage for buy to let purposes . Investing as a company, or considering it? Take a look at our guide to mortgages for limited companies.

Can I get a buy to let mortgage on a commercial property?

As long as you meet the lender’s eligibility criteria, this may be possible, although the type of buy to let mortgage you need for a commercial property is not the same type of loan you would need for a residential BTL.

As detailed in the previous section, you would need a specialist commercial BTL mortgage, or a commercial investment mortgage, which are bespoke to the business sector,

One thing to remember about the field of business buy to let mortgages is that it covers a huge range of cases. As such, the terms can vary wildly - financing a building you’re planning to rent out on Airbnb is not the same as one that’s going to be rented to a high street retailer.

As such, there is a lot of variety around loan to value ratios (LTVs), interest rates and additional costs, all of which are usually determined on a bespoke basis What we can say, however, is that the experts we work with have helped to finance all sorts of buy to let commercial mortgages - so if you’re in doubt, just give us a call and we’ll see what we can do for you.

What is the difference between a buy to let and a commercial mortgage?

As we’ve already touched on, a standard buy to let mortgage is what you would need if you are planning to let a property to residential tenants.

If your plans involve letting a property to a business, you will need a specific type of business buy to let property loan, usually referred to as a commercial investment mortgage. Rates are typically higher than for a residential BTL and the way they are assessed can also differ. Read on for further information or make an enquiry to speak with an advisor.

Can I afford a commercial buy to let mortgage?

The affordability for a buy to let business mortgage varies quite a lot from conventional BTL or residential.

As a general rule, you will usually have to pay higher fees, greater interest and put down a larger deposit, for a start, but most lenders will decide which commercial mortgage products you qualify for based on rental income, among other factors.

How much deposit will I need for a commercial mortgage on a rental property?

The kind of deposit size tends to vary based on the kind of property you’re looking to buy, the business you plan to rent to, and the length of the lease (if buying leasehold).

With residential mortgages for first time buyers, a lender may offer you up to 100% LTV. This is usually not the case in commercial BTL mortgages, where a great many lenders will want to see you put down at least 25% (15% in a few rarer cases and industries).

There is a caveat: if you’re willing to put up further collateral to secure against the loan (such as property or asset you own and hold sufficient equity in), the lender may consider a higher LTV - perhaps going all the way to 100%. Of course, this is not something to be taken lightly. And, as always, the larger your deposit, the more options you’ll have.

Commercial property investment mortgage rates

Commercial buy to let mortgage rates for investment property are typically higher than mortgages for owner-occupier businesses, and depending on the lender can be fixed or variable rate.

As with everything mortgage related, the less risky you appear, the better terms a lender will offer you.

Here’s a few things that can affect the rate that a lender may be prepared to offer you

  • The lender in question, and their familiarity with the industry you’re in
  • Your loan to value (LTV) ratio
  • Your personal credit history
  • Your business's trading history and financials (if applicable)
  • The kind of tenant you intend to let to, and the terms on which you plan to do it

A broker can access the best buy to let commercial mortgage rates

Many lenders in the business buy to let mortgage space are extremely specialised, broker-only outfits. They don’t deal with the general public.

The expert brokers we work with have access to these kinds of specialist deals and can help you get the best BTL commercial mortgage rates and the best deal for your unique needs.

How does bad credit affect my application?

Your personal credit, and the credit/track record of your business (if applicable) will both affect what kind of deals you’re offered, and by whom.

As a general rule: the the better your personal credit, the more likely you are to get an offer, and the better terms you’ll get.

For more information about bad credit commercial mortgages, see our article on them here.

Can I get a commercial BTL mortgage in later life or retirement?

All else considered, yes - if your business case and financing are strong. The majority of lenders won’t set an upper cap on your age - though they generally won’t lend to anyone below the age of 18.

What other factors does a commercial lender consider?

In a nutshell, affordability is calculated based on the combination of your projected rent, plus your expenses - stress tested for possible interest rate rises and other unforeseen factors. The lender will also take the following variables into account when considering how closely you meet their commercial buy to let mortgage criteria.

Your business model and industry

Some industries are seen as more risky than others. As such, lenders will offer less favourable terms, or just refuse to lend outright.

The type of building itself

Like with residential mortgages, lenders are interested in what the building is made of, and where it is located. Unusual, ‘non-standard’ constructed buildings may result in less options for financing.

Income projections

A well researched and validated business plan can provide your lender the confidence they need to lend to you.

Any collateral you can put up

As an example, this can include your own residential property, or assets such as a stock portfolio. You will need to hold sufficient equity in the security property/assets.

Your track record and trading history

Some lenders will look more favourably upon your application if you have a history of making deals like this work.

The value of the property

Commercial financing is more expensive for lenders than conventional property or BTL. Due to such costs, lenders often work to minimum property prices.   Most lenders would be unwilling to offer a commercial mortgage for less than £26,000.

Mortgage for holiday let businesses

Traditionally the domain of the B&B or small hotel, the interest in holiday let financing has increased with the rise of Airbnb and similar short-stay businesses.

From a financial perspective, holiday lets work very differently to conventional buy to let.

The difference comes down to the tenancy agreement - most rental agreements are on an assured shorthand tenancy (AST) basis, whereas holiday lets operate a little more like a hotel, and are often classified that way by lenders.  As such, it may be harder to purchase one of these properties using a business mortgage for holiday lets.

Some lenders have specific products for holiday letting, but many tend to lump them into the larger category of ‘commercial mortgages’.

See our article for more information on holiday let mortgages.

Can I get a commercial mortgage for a HMO?

In a word, no. Houses of multiple occupancy are residential properties and therefore require residential buy to let mortgages. The only circumstances where you could purchase one with a business mortgage would be if the property in question had commercial space in it - in which case you would need a semi-commercial buy to let mortgage.

Commercial buy to let mortgage calculator

A commercial buy to let mortgage calculator will   give you an idea of how much you could borrow. Remember that any online mortgage calculator can only give you an idea, or an outline, of what is possible.

For a better idea of what’s possible, just get in touch - one of the expert advisors we work with can help to give you a clearer picture, and answer any questions that you might have.

Get some expert help with your commercial BTL

If you have questions and want to speak to an expert for the right advice, call Online Mortgage Advisor today on 0800 304 7880 or make an enquiry here.

Then sit back and let us do all the hard work in finding the broker with the right expertise for your circumstances. The experts we work with are whole of market and can help you find the right commercial buy to let mortgage lenders for borrowers with your needs and circumstances  – We don’t charge a fee and there’s absolutely no obligation or marks on your credit rating.

Updated: 12th July 2019
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FCA disclaimer

*Based on our research, the content contained in this article is accurate as of most recent time of writing. Lender criteria and policies change regularly so speak to one of the advisors we work with to confirm the most accurate up to date information. The info on the site is not tailored advice to each individual reader, and as such does not constitute financial advice. All advisors working with us are fully qualified to provide mortgage advice and work only for firms who are authorised and regulated by the Financial Conduct Authority. They will offer any advice specific to you and your needs. Some types of buy to let mortgages are not regulated by the FCA. Think carefully before securing other debts against your home. As a mortgage is secured against your home, it may be repossessed if you do not keep up with repayments on your mortgage. Equity released from your home will also be secured against it.

Find out more about Commercial Mortgages

Commercial Mortgage Guide