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A Guide to Commercial Mortgage Deposits

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

No impact on credit score

Pete Mugleston

Author: Pete Mugleston - Mortgage Advisor, MD

Updated: August 27, 2021

The process of taking out a mortgage for commercial property differs in many ways from that of getting a residential mortgage, and this is true for the deposit too.

To answer some of the questions we frequently hear from customers, we’ve put together this guide to commercial investment property mortgage deposits in the UK. Specifically covering how much you’ll need to raise, what factors can affect the amount required and how to get a business mortgage with minimal deposit.

How much deposit do I need?

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 mortgage (for letting out to a business). Deposit requirements for these mortgage types can differ slightly as one is considered higher risk.

How the type of mortgage 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?

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.

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How can I get a low deposit commercial mortgage?

Fortunately, there are ways you might be able to convince a lender to remove their loan to value (LTV) cap (which is typically 70-80%) so you can put down a low deposit.

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 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

If you have any further questions and want to speak to an expert for the right advice, call 0808 189 2301 or make an enquiry and we’ll be in touch soon to discuss your requirements, with a view to finding you a suitable expert.

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About the author

Pete, an expert in all things mortgages, cut his teeth right in the middle of the credit crunch. With plenty of people needing help and few mortgage providers lending, Pete found great success in going the extra mile to find mortgages for people whom many others considered lost causes. The experience he gained, coupled with his love of helping people reach their goals, led him to establish Online Mortgage Advisor, with one clear vision – to help as many customers as possible get the right advice, regardless of need or background.

Pete’s presence in the industry as the ‘go-to’ for specialist finance continues to grow, and he is regularly cited in and writes for both local and national press, as well as trade publications, with a regular column in Mortgage Introducer and being the exclusive mortgage expert for LOVEMoney. Pete also writes for OMA of course!

Read more about Pete

Pete Mugleston

Mortgage Advisor, MD

FCA disclaimer

*Based on our research, the content contained in this article is accurate as of the 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 information 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.

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