Getting a Commercial Buy-to-Let Mortgage

Understand all the commercial buy-to-let mortgage options available to you and how to get the best deal.

What commercial buy-to-let mortgages are and how they work

Commercial buy-to-let mortgages are very similar to residential ones, except (as the name suggests) that you can only let your property go to commercial tenants, not residential ones. If your property is used for commercial and residential purposes, you’ll likely need a semi-commercial mortgage instead.

Possible examples of when you might use this type of mortgage include letting out the following properties to commercial tenants:

• Retail units
• A hospitality business (such as a hotel)
• Warehouses

Commercial buy-to-let mortgages are usually interest-only, meaning that your monthly payments will only cover the interest on the loan, while the capital amount remains the same throughout the term and is due for repayment at the end of the agreement. You can get fixed-rate commercial buy-to-let mortgages, variable-rate, and discounted rates.

How to get a commercial buy-to-let mortgage

A commercial buy-to-let mortgage involves more paperwork and lender checks than a residential version. It’s sensible to work with an experienced broker who can swiftly guide you through this process. If you’d like us to put you in touch with a commercial mortgage broker, contact us today.

Your broker will help with the following key steps:

1. Preparing your business case

With any loan for business purposes, your lender will want to understand how you hope to make money and whether you can afford to repay the loan. In the case of a commercial buy-to-let mortgage, that means they’ll need to see who you plan to let the premises to and what rental income you’ll receive.

Your broker will review the details with you and make suggestions to strengthen your application.

2. Checking your personal and business credit history

Your lender will need to assess the creditworthiness of both you and your business (if you are buying through a limited company, as most commercial landlords do). Your broker will check for any issues that could affect your application and advise you on what steps to take.

3. Finding the right buy-to-let lender

Your broker will help you identify which lender is best for your circumstances. For example, if you’re a first-time landlord, some lenders are more likely to approve your application than others. The same is true if you have a poor credit history. Their expertise will ensure you don’t end up paying more than you need to.

Application requirements

Requirements and eligibility criteria vary between different commercial lenders, but your application could be approved or declined based on any of the following:

• Your deposit. You’ll usually need at least 20-25% of the property value, and some lenders may require a higher deposit depending on your circumstances.
• Your expected rental income.  Your monthly rental income must be at least 125% of your mortgage repayments. Again, some lenders may require more.
• Your experience. Lenders prefer applicants with previous experience as commercial landlords and a solid track record. It’s difficult—but not impossible—to get this type of mortgage as a first-time landlord.
• Your trading history. If you’re buying the property through a limited company, your lender will need to see evidence that the business is profitable.
• Your chosen industry.  Different industries have different levels of risk, so lenders might specialise in or exclude certain examples.

If your application has weaknesses, such as a lack of experience or trading history, your broker might suggest ways to offset the risk the lender will be taking. For example, they might recommend offering a larger deposit or putting up additional collateral, such as a residential property or a business asset.

Rates and costs

Commercial buy-to-let mortgage rates are usually higher than residential rates. The interest rate you’ll be offered would typically be 1%-1.5% above standard mortgage rates.
Other fees, such as arrangement fees and valuation fees, can also be higher than for residential mortgages, reflecting the complexity of arranging a commercial mortgage.

You should also consider arrangement and valuation fees, which tend to be higher than those for residential mortgages. Our guide provides more information about commercial mortgage rates.

How much will your mortgage cost?

You can use the mortgage repayment calculator below to see how much your repayments will be based on the size of your loan and the expected mortgage rate.

Can you remortgage?

It’s usually easier to remortgage if you’re already on a commercial buy-to-let deal, as you’ll have more experience as a commercial landlord than you did when you first secured the mortgage. You should have accounts to show that you’ve been successful in letting the property at a profit in that time. All of this can help you to get a better mortgage rate.

How Online Mortgage Advisor can help you secure a commercial buy-to-let mortgage

It takes skill and experience to apply for a commercial buy-to-let mortgage that includes all the details lenders are looking for. Working with the right broker can help you get it right the first time and speed up the approval process.

A broker who helped you buy your home may not have the expertise to secure this type of mortgage. If you’d like us to connect you to someone specialising in commercial buy-to-lets, you can call us at 0330 818 7026 or make an enquiry online.