What is a Commercial mortgage?

A commercial mortgage is a type of loan used to buy, refinance, or develop property for business use. Unlike residential mortgages, which are meant for homes people live in, commercial mortgages are designed for properties like offices, shops, warehouses, factories, restaurants, hotels, and other business premises.

There are two main types of commercial mortgages. The first is an owner-occupied commercial mortgage, where a business buys a property to operate from, for example, a retail shop or an office space. The second is a commercial investment mortgage, which is used to buy a property that will be rented out to other businesses as a source of income.

Commercial mortgages are usually larger and more complex than residential ones. Loan terms typically range from 3 to 25 years, and the deposit required is often between 25% and 40% of the property’s value. Interest rates are generally higher than residential rates because commercial lending carries more risk and is more bespoke, with lenders assessing the borrower’s business performance, the property’s value, and the income it generates.

These types of mortgages are available to a range of borrowers, including limited companies, partnerships, sole traders, and property investors. Whether you’re purchasing a building for your own company or investing in commercial property to rent out, a commercial mortgage can be a key tool for long-term business growth or income generation.