Interest-Only Commercial Mortgages

All you need to know about Interest-only commercial mortgages and how a broker can help you

What type of commercial property are you looking to mortgage?

Home Commercial Mortgages Interest-Only Commercial Mortgages
Pete Mugleston

Author: Pete Mugleston

Mortgage Advisor, MD

Nathan Porter

Reviewer: Nathan Porter

Independent Mortgage Advisor

Updated: April 8, 2024

How we reviewed this article:

Our experts continuously monitor changes in the financial space and work closely with qualified mortgage advisors for factual verification.

April 8, 2024

If you’re looking to get a commercial mortgage and you’d prefer to pay on an interest-only basis rather than repay the capital as you go, first you will need to know what’s involved and what the implications are.

Whether you’re aiming to make improvements to an existing commercial property, invest in a new one or acquire a new business, using an interest-only commercial mortgage could be the best option.

Are all commercial mortgages interest-only?

No, both repayment and interest-only options are available, as with standard residential mortgages. In fact, repayment mortgages were more widely available than interest-only until recently, however in the current climate of rising cost-of-living, more lenders are making interest-only commercial mortgages more accessible.

For example, Allica Bank, a business-focussed lender, announced it was adding fixed-rate interest-only commercial mortgages to its portfolio to keep up with demand.

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What kind of rates and deposits are available for a commercial interest only mortgage?

Your first step should be to find a broker who specialises in interest-only commercial mortgages. Make an enquiry and we will match you with an advisor from our network who meets this criteria.

Your commercial mortgage broker will guide you through the following steps:

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What your repayments will look like

Commercial mortgages are not approved with a one-size-fits-all approach, rather they are analysed on a case-by-case basis. This individual consideration makes estimating any repayments you make hard to pin down. A broker can help you to get a clearer picture, but in the meantime, we can help give you a rough idea of what you might be looking at with our commercial mortgage calculator.

Commercial Mortgage Calculator

This calculator can tell you the monthly and overall cost of your mortgage, based on the loan amount, interest rate, and term length.

Enter the amount you're borrowing
£
Between 3.5% and 6% is an average figure but the rate you get may vary
%
Enter the mortgage term, 25 years is the average but lenders can offer shorter and longer terms
years

Your Results:

The monthly repayments on a mortgage would be

The total amount paid at the end of your mortgage term would be

Get started with an expert broker to find out how much they could help you save on your mortgage repayments.

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Do you need a repayment vehicle?

Yes, having a repayment vehicle in place is crucial to the success of your application. Lenders will need to be satisfied with exactly how you intend to pay back the loan at the end of the commercial mortgage term, or in stages throughout the term, as you will have the full capital to repay.

They will also require proof that this is a cohesive and robust plan to honour your debt with. Commercial mortgages are considered higher risk than residential loans, and for this reason banks are strict with how they offset this. One way is higher interest rates and lower loan-to-value allowances, another is scrupulous screening at the application phase. An experienced commercial mortgage broker can help you to get through this.

Which lenders offer these mortgages?

A good broker with plenty of contacts and access to the market will know exactly which banks, building societies and niche lenders are increasingly on board with such a product.

It’s also worth noting that some lenders, such as Barclays, go as far as advertising the fact they are willing to consider a ‘capital repayment holiday’, meaning a period of time that is interest-only within the mortgage term, even if they don’t go as far as saying they can give you the whole term on an interest-only basis.

It is difficult to ascertain exactly how many commercial mortgage lenders are willing to provide interest-only as a repayment option because many don’t advertise whether they do or don’t. However, as we’ve mentioned already, more and more lenders are responding to growing demand in the market.

Getting an interest-only business loan

If you are intending on borrowing less than £25,000, you might prefer the option of an unsecured business loan instead, which may be easier and with fewer hurdles to clear. A mortgage broker can help you in this area of financing too because many commercial mortgage lenders also deal in business loans.

However, if you want to borrow more than this amount, a lender might need the assurance of a mortgage and all the security that comes with that instead.

Get matched with a commercial mortgage specialist

As we have outlined here, working alongside an advisor with special insight, knowledge and experience in this field will likely sway the outcome of your application dramatically. Investing in such a service in the short term can make an enormous difference to the long-term trajectory of your mortgage, and therefore overall financial status.

After hearing about your unique circumstance, we are able to match you directly to the right broker in our network, leaving you in safe and reliable hands towards your commercial future. Call us today for a free initial chat on 0808 189 2301 or make an online enquiry today.

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We know everyone's circumstances are different, that's why we work with mortgage brokers who are experts in all different mortgage subjects.

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FAQs

It may be possible, depending on the robustness of your business case. However, this would likely need the assistance of a specialist lender who has previous experience of this type of lending so getting in touch with a broker would likely save you a lot of ‘search time’.

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We know everyone's circumstances are different, that's why we work with mortgage brokers who are experts in Commercial Mortgages

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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 Online Mortgage Advisor of course!

Read more about Pete

Pete Mugleston

Mortgage Advisor, MD

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