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Mortgages for Retail Properties

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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: 8th November 2019 *

We often hear from customers who are looking to take out a commercial mortgage for retail property, so if you’re planning on buying a shop or other retail unit, this article should help to answer any of the initial questions that tend to arise at the start of the process.

Alternatively, if you’ve already started shopping around for your retail mortgage and have been unhappy with the rates you were offered or were even turned down altogether, we’d be happy to help. Call us on 0808 129 2301 or make an enquiry and we’ll put you in touch with one of the specialist advisors we work with. 

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What is a retail mortgage?

Put simply, it's the kind of commercial mortgage you will need if you're planning to borrow money to purchase a retail premises.

Whether you’re planning on opening a vape shop, nail salon, cafe, convenience store, bakery or book shop, chances are you’ll need to borrow some funds to cover the purchase and the cost of any renovations, and by far the most popular way of doing this is to take out a commercial mortgage that is tailored for retail property. 

Commercial mortgages are highly bespoke products, tend to have higher interest rates than residential mortgages, and lower loan-to-value (LTV) ratios, meaning you’ll need to stump up a bigger deposit, but the exact figures will be determined by an analysis of your risk as a borrower and how your retail business is expected to perform based on a number of factors.

There are numerous UK lenders active in this sector, and the advisors we work with can help to point you towards one that suits your business needs. 

Am I eligible for a commercial retail mortgage?

To qualify for a commercial mortgage you may need to prove you have some experience in the retail sector as well as having a solid business plan, as this will satisfy the lender that you have a strategy for servicing the repayments. Generally speaking, the more experience of running a profitable retail business you can provide, the more providers will want to lend to you.

You’ll also need to disclose certain details of your own financial situation such as your credit history and other income sources (as well as those of any business partners), and your perceived level of risk as a borrower will be assessed in the round along with the commercial health of your business.

Can I get a commercial mortgage without retail experience?

If you don’t have an established retail career behind you, don’t panic: some lenders will still consider you and will take other factors into account such as any training courses you’ve been on, general management experience and a business plan showing a clear vision and commercial competence. 

Under these circumstances, most lenders will likely cap the loan to value ratio at 70%.

The experts we work with have an overview of the whole market, and can help point you towards these lenders, so don’t hesitate to contact us if you’d like to talk through your situation with a suitable advisor.  

How much deposit do I need for a retail mortgage?

The usual range for commercial mortgages is around 20%-40% for businesses within the retail sector. As with all mortgages, you can choose to pay a larger deposit if you’re in a position to do so, as this will often result in a better rate and lower monthly repayments. Alternatively, if you want to reduce your deposit potentially to zero, you could consider putting up additional security, usually another property owned by you or a business partner, which you also hold equity in. 

If this is not an option and you don’t have access to a large deposit, your level of experience in the sector along with your risk profile as a borrower will determine whether or not your lender is likely to accept a deposit at the lower end of the scale, so we recommend speaking to an expert if you need to find a lender that will accept a smaller deposit, whatever your circumstances.  

What commercial mortgage can I afford for my retail property?

When applying for a commercial mortgage, affordability is calculated to a large extent on the income you can expect to generate through running of the business itself: this will need to be presented as projected income in your business plan along with a schedule of assets and liabilities. You will also usually need to show 2-3 years accounts if your business is already trading.

If you’re making the purchase through a new business venture or are being offered rates you consider to be unfavourable for another reason, you may have to rely more heavily on other sources of income and assets not directly related to the project in order to prove that you can afford to finance it. 

For example:

  • Refinancing another property you own to release equity for a larger deposit
  • Putting up additional security (i.e taking out a second mortgage on another property to act as security on your new commercial mortgage)
  • Taking out a bridging loan 
  • Using development finance to cover the purchase and renovation costs of a refurb property.

Commercial mortgage rates for retail property

Commercial mortgage interest rates are typically higher than residential mortgage rates, reflecting the degree of risk that businesses can pose to the lender. There are no ‘off the peg’ products in this field, so it’s impossible to say what rate you should expect, as so many factors related to your business and individual circumstances need to be taken into account.

To increase your chances of being offered a good rate on a retail mortgage loan, you can ensure your business plan is in good shape, address any credit issues you can influence, and consider putting down a larger deposit. Know your market and establish demand - a lender would be reluctant to lend to a bakery opening up next to a Greggs, for example.

But by far the best option is to speak to an expert with an overview of the commercial mortgage market who can steer you towards the most suitable lenders.

Can I take out a commercial mortgage with bad credit?

Worried about any past credit issues such as late payments, low credit score or CCJs? The good news is you should still be able to take out a commercial mortgage with a few blemishes on your credit history, depending on the nature and severity of the ‘bad credit’ as well as the lender’s individual policy. 

Some lenders will reject applicants automatically with one type of bad credit, while another may take a different view, so you’ll need to work with an advisor who has experience of navigating the market and knowledge of lenders’ different appetites for risk. 

Ultimately, any instances of bad credit will be viewed in context with the overall strength of your application, so if you have multiple credit issues on your file but are still accepted by a lender, you will probably be required to pay less favourable interest rates or put up a larger deposit (up to 50% is possible) or even an additional security. 

If you have already been rejected by a commercial lender or are worried that you might be, the experts we work with will be happy to refer you to other providers with a history of catering for customers with various credit issues, so please call us on 0808 189 2301 or make an enquiry to discuss your options. 

Can I get a commercial mortgage after retirement?

If it’s your dream to run a shop or cafe as your retirement project, you’ll be pleased to learn that most commercial lenders do not impose an upper age limit on borrowers, so you should be able to take out a commercial mortgage into retirement. 

At the other end of the age scale, very few lenders will consider offering a commercial loan or retail property mortgage to applicants under the age of 18.

What are the rules for larger retail mortgage loans?

As long as you successfully demonstrate an ability to service the mortgage, there is not usually an upper limit to how much you can borrow in the form of a commercial mortgage. In fact, the bigger the loan, the more favourable the interest rates tend to become.

Speak to an expert on commercial mortgages for retail property

If you’re in the market for a commercial mortgage and want to discuss your plans with an expert in retail property finance, call Online Mortgage Advisor today on 0808 189 2301 or request a callback. The specialists we work with have access to the entire commercial mortgages market and are therefore ideally placed to help you realise your ambition,. 

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: 8th November 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.