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A guide to commercial mortgage deposits

How much deposit do you need for a commercial mortgage? Find out here.

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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: 26th June 2019* | Published: 22nd March 2019

We regularly hear from customers who are looking for information about commercial property mortgage deposits, specifically how much they need to raise, the factors which affect the amount required and ways to get a business mortgage with minimal deposit.

To answer all of these questions and more, we’ve put together this guide to commercial mortgage deposits in the UK, and you’ll find the following topics covered below...

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How much deposit do I need for a business mortgage?

Customers often get in touch to ask us things like “what deposit do I need for a commercial mortgage?” and the answer will likely depend on a number of factors, including the type of business mortgage you’re after and your overall profile as a borrower.

There are two types of business mortgage: owner-occupier (for a business premises you plan to trade out of) and commercial investment (for letting out to a business). Deposit requirements for these mortgage types can differ slightly as one is considered higher risk.

How the mortgage type affects deposit requirements

The typical deposit for a commercial mortgage is between 25% and 40%, depending on the level of risk but commercial investment deals usually have slightly higher requirements.

Most lenders offer owner-occupier mortgages with a 70-80% loan to value (LTV) ratio, but for commercial investment mortgages it’s rarely higher than 75%, unless the borrower has additional security to put up - we cover loan security in more depth later in this article.

What other factors affect the amount of deposit I need for a business mortgage?

The commercial mortgage deposit percentage you need will largely come down to the level of risk the lender thinks the deal involves, and they will determine this based on several factors.

Business mortgages are usually assessed on a case-by-case basis, but most lenders will judge the amount of risk based on the following variables…

Your credit rating

Although there are commercial lenders who specialise in various types of bad credit, if you and/or your business has any adverse on their file, it can drive up the level of risk. Under these circumstances, some lenders may ask you to put down extra deposit to offset the risk.

Your industry experience

Most lenders prefer borrowers to have a trading history (2-3 years is standard) and a strong track record in the relevant industry. While there are specialist providers for first-time investors and start-ups that present a strong business plan, some lenders might request extra deposit to safeguard themselves against the perceived uncertainty.

Affordability

Most commercial lenders assess whether a property loan is affordable by looking at the business’s operating performance, reflected in its earnings before interest, tax, depreciation and amortisation (EBITDA). There is no hard rule on what these figures must be, but the lender has to be confident the business is profitable enough to cover the mortgage.

The more confident the lender is that your business is profitable enough, the more likely they are to accept the minimum deposit for a commercial mortgage.

How can I get a low deposit commercial mortgage?

We hear from lots of customers who are looking for a commercial mortgage with only the minimum deposit to put down (and in some cases even less than that), and they usually want to know how they can get a low deposit commercial mortgage.

If you’re in this boat, the good news is that there are ways you might be able to convince a lender to remove their loan to value (LTV) cap (which is typically 70-80%).

The most common way would be to put up extra security, such as another property you own or a valuable asset. Most business lenders would be happy to accommodate this, as long as you hold sufficient equity in the security property/asset. The amount of equity tied up in the security can be subtracted from the required deposit amount.

Applying for a commercial mortgage through a whole-of-market broker can also help you find the lender with the lowest deposit requirements whose eligibility requirements you meet, so make an enquiry and the advisors we work with will track them down.

Can I get a commercial mortgage with no deposit?

Yes, this is possible. Some lenders offer commercial mortgages with a 100% loan to value (LTV) ratio if the borrower is able to put up extra security, such as a properties or assets they own and hold sufficient equity in. As long as the equity is equal or more than the deposit amount, some providers will be happy to offer you a mortgage with no deposit.

Putting up extra security should never be done lightly as this carries the risk of multiple repossessions if you default. If this is something you’re concerned about, make an enquiry and the advisors we work with will assess the level of risk and suggest ways to offset it.

Speak to a commercial mortgages expert

Still wondering what deposit is needed for a commercial mortgage?

If you have any further 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.  – We don’t charge a fee and there’s absolutely no obligation or marks on your credit rating.

Updated: 26th June 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 Mortgages Guide