A commercial mortgage is a loan secured against property used for business purposes — rather than a home you live in. It might fund the premises your business trades from, an investment property you let to commercial tenants, or a mixed-use building with a shop below and a flat above. Commercial mortgages work differently from residential ones: lenders take a more bespoke, case-by-case view, and the central question is whether the property and the business behind it can comfortably support the borrowing. This guide explains, in plain English, the main types of commercial mortgage, who they suit, and how lenders weigh them up — so you can get your bearings before you take advice.
This page is information, not advice. It is here to help you understand the landscape, not to recommend a particular product or course of action. A commercial mortgage is a significant business and investment decision with tax, legal and commercial consequences, so before you commit, speak to a qualified adviser who can look at your circumstances properly. Niche Advice Limited is a mortgage and credit broker, not a lender, and is authorised and regulated by the Financial Conduct Authority.
Commercial mortgages are not regulated by the FCA. Commercial lending is treated as a business activity, so it generally falls outside the consumer protections that apply to residential mortgages. Because of that, the residential repossession warning does not apply here in the same way — but the property securing the loan is still at risk if the borrowing is not repaid, and you should take the commitment just as seriously. An adviser can explain exactly what protections do and do not apply to your situation.
What this guide covers
“Commercial mortgage” is a broad term covering several quite different situations. Below we walk through:
- Owner-occupied commercial premises — buying the property your own business trades from
- Commercial investment property — buying property to let to business tenants
- Semi-commercial (mixed-use) property — buildings that are part commercial, part residential
- Trading-business premises — property bought together with the business that runs from it
- How lenders assess a commercial mortgage — affordability, deposits, security and structure, explained in principle
Each section is short and scannable. You will not find interest rates, fees, APRCs or monthly figures here, because commercial lending is priced individually and depends entirely on your circumstances, the property and the business — for a current quote, speak to an adviser.
Owner-occupied commercial premises
An owner-occupied commercial mortgage is for a business buying the property it trades from itself — the office, shop, workshop, surgery, warehouse, restaurant or industrial unit where the work actually happens.
For many established businesses, buying their premises rather than renting is an attractive step. It removes the uncertainty of rent reviews and lease renewals, gives you control over the space, and means the monthly outlay builds an asset for the business rather than going to a landlord.
Lenders assessing an owner-occupied application look closely at the trading business — typically its accounts, profitability, cash flow and track record — because the loan is usually repaid out of trading income. They will want to be satisfied the business can service the borrowing comfortably alongside its other costs. Newer or less predictable businesses can still be considered, but may face a narrower choice of lenders or be asked for more supporting information.
The trade-offs are worth weighing honestly: owning ties up capital in a deposit, makes the business responsible for repairs and maintenance, and means you carry the risk if the property falls in value or your space needs change. For many businesses it is still the right long-term move — but it is a decision to take with the figures done properly and good advice behind you.
Commercial investment property
A commercial investment mortgage is for buying — or refinancing — commercial property that you intend to let to business tenants, rather than occupy yourself. The income comes from the rent those tenants pay under their commercial leases. This covers a wide range of property: offices, retail units, industrial estates, warehouses and leisure premises among others.
Here the lender’s focus shifts from a trading business to the strength and security of the rental income — who the tenants are, how financially sound they are, how long their leases run, and whether the rent reliably covers the borrowing with room to spare. A property let on a long lease to an established, creditworthy tenant is generally seen as lower risk than one with short leases, vacant units or a single tenant whose finances are uncertain. Lenders will consider the lease terms, the covenant strength of the tenants, void risk (the chance of units sitting empty), and the property’s location and condition.
Commercial property investment can produce a worthwhile return, but the risks deserve equal billing. Tenants can fail or leave, and re-letting commercial space can take longer than residential. Values can fall as well as rise, and lease structures, rent reviews and dilapidations are more complex than residential tenancies. Because this lending is not FCA-regulated, the consumer protections around a residential mortgage do not apply. An adviser who works in this market can help you understand what lenders will be comfortable with for a specific property.
Semi-commercial (mixed-use) property
A semi-commercial — or mixed-use — property combines commercial and residential elements in one building. The classic example is a shop, café or office on the ground floor with one or more flats above, but the mix can take many forms.
These properties sit in an interesting middle ground. They are usually treated as commercial lending overall, because part of the building is in business use, but the residential element can broaden their appeal — for example, providing a second income stream from the flats alongside the commercial rent.
Lenders take a tailored view. They will typically consider the split between commercial and residential use, the income from each part, the type of commercial tenant, and how the building is laid out and accessed. The balance of uses can affect which lenders will look at it and on what terms — a building that is mostly residential with a small commercial element is assessed differently from one that is predominantly commercial.
Because semi-commercial lending crosses two worlds, it is a specialist area with a smaller pool of lenders. The classification, the lease arrangements and the way the income is treated all matter, so it genuinely pays to take advice before you proceed.
Trading-business premises
Sometimes the property and the business that operates from it are bought together — the premises and the trade are part of the same deal. This is common where the property and the operation are closely tied, such as pubs, hotels, guest houses, care homes, nurseries, restaurants, petrol stations and dental or veterinary practices.
This type of lending is more involved than a straightforward property purchase, because the lender is assessing both the bricks and mortar and the business that generates the income. Lenders will look at the trading performance of the business — its accounts, turnover, profitability and the experience of the people running it — as well as the property itself. The value of these businesses is often bound up with their ability to keep trading, so a lender wants to be confident the operation is viable in your hands. Sector experience can count for a great deal: someone taking on their first venture in an unfamiliar trade may face more questions, or a narrower set of lenders, than an experienced operator.
These are specialist transactions, frequently handled by lenders who focus on particular sectors. The legal and commercial detail — licences, regulatory approvals, goodwill, fixtures and fittings, and how the business is valued — can be considerable. Advice from a broker who understands the relevant sector, working alongside your accountant and solicitor, can make a real difference to how smoothly things go.
How lenders assess a commercial mortgage
Commercial lending is far less of a tick-box exercise than residential. Lenders take a bespoke view of each case, and pricing and terms are individually set. A few principles explain how they tend to approach it. (No figures here — the actual thresholds and pricing vary by lender, property and business; speak to an adviser for a current quote.)
Affordability and the business behind the loan
The first question is how the loan will be repaid. For owner-occupied and trading-business cases, that usually means the profits of the business; for investment cases, it means the rent from tenants. Lenders examine business accounts, cash flow, projections and the track record of those involved, looking for confidence that the income comfortably covers the repayments with a sensible margin to spare. The stronger and more predictable that income, the wider your likely choice of lenders.
Deposit and loan-to-value
As with any mortgage, commercial borrowing is capped at a loan-to-value (LTV) percentage — the proportion of the property’s value the loan represents — and you fund the rest as a deposit. Commercial mortgages generally require a larger deposit than a residential purchase, and the maximum LTV varies by lender, by property type and by the perceived risk of the case. More specialist property — or a less established business — typically means a lower maximum LTV and a bigger deposit.
Security, valuation and structure
The property is the lender’s main security, so it will be professionally valued, and the lender will consider its type, condition, location and how easily it could be sold or re-let if needed. In some cases a lender may look for additional security or personal guarantees from the directors or owners, particularly where the business is newer or the property more specialist. Commercial mortgages can be arranged on a capital-and-interest basis or, in some cases, interest-only, with terms often shorter than a typical residential mortgage. The right structure depends on your cash flow, your plans for the property and your appetite for repayment certainty — all things to talk through with an adviser before you decide.
A balanced view: the realities of commercial borrowing
A commercial mortgage can be a sound way to secure premises or build an investment, but it is right to set out the risks alongside the appeal. The property securing the loan is at risk if you do not keep up repayments. Commercial property values can fall as well as rise, and commercial space can take longer to sell or re-let than residential. Tenants can fail or vacate, leaving rent uncovered, and trading businesses can have lean periods when income dips. Deposits are usually larger, tying up capital you might otherwise use in the business. Personal guarantees, where required, mean directors may carry personal responsibility for the debt. And because commercial lending is not FCA-regulated, the consumer protections that surround a residential mortgage generally do not apply.
None of this means commercial borrowing is a poor idea — countless businesses and investors use it well. It simply means going in with your eyes open, the numbers stress-tested, the right professionals around you, and good advice behind the decision.
Frequently asked questions
Are commercial mortgages regulated by the FCA?
Nearly ALL Commercial mortgages are treated as business lending and sit outside the regulation that covers residential mortgages, so the consumer protections that apply to a residential mortgage generally do not apply. The property securing the loan is still at risk if the borrowing is not repaid.
The exception to this rule is where the borrower is a small partnership (less than 4 partners) or a sole trader rather than an incorporated entity. In this instance it will be classed as credit broking and fall into Consumer Credit Act. An adviser can explain what does and does not apply to your case.
What deposit do I need for a commercial mortgage?
Commercial mortgages usually require a larger deposit than a residential purchase, with the maximum loan set as a loan-to-value percentage. The exact figure depends on the lender, the property type and the strength of the business or rental income. Speak to an adviser for what is realistic in your case.
Can I get a commercial mortgage for the premises my own business trades from?
Yes — that is an owner-occupied commercial mortgage. The lender will look closely at your business accounts and trading performance, because the loan is usually repaid from trading income. An adviser can help match your business to lenders comfortable with your situation.
What is a semi-commercial or mixed-use mortgage?
It is a mortgage on a property that is part commercial and part residential — such as a shop with a flat above. These are usually treated as commercial lending and are a specialist area, with a smaller pool of lenders who assess the balance of uses and the income from each part.
Can I buy a business and its premises with one mortgage?
Often, yes. Where a trade and its property are closely tied — a pub, care home or restaurant, for example — lenders can consider both together, assessing the trading performance as well as the property. These are specialist transactions, and sector experience can help.