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Commercial Buy to Let Mortgages
Looking for a commercial buy to let mortgage? At Mortgage Lane, our award-winning team of brokers, experienced in buy to let investments, is ready to assist. We cater to everyone from first-time buyers with low credit scores to seasoned portfolio landlords, offering tailored solutions for every unique investment journey.
PROCESS BREAKDOWN
1
Information gathering and advice
The first process in your mortgage application will be gathering or updating information in relation to the property, tenants, or yourself. Once this has been established your expert commercial buy to let mortgage broker will make a product recommendation.
2
Credit approval
Once you are satisfied with the product recommended and have confirmed to proceed, this will usually be submitted the same day to give you a decision, until this point there is still nothing to pay! As long as the Agreement in Principle (AIP) was approved, we can move to application stage where fees become payable.
3
Application, valuation & underwrite
Once the application is submitted, your valuation will be booked in and most of the time (depending on the lender). This will usually be completed once your initial underwriting has been completed. Once the valuation is returned, if acceptable, the lender would then look to make a formal offer. You can then move to legal stage.
4
Offer and completion
Once you have had your commercial buy to let mortgage offer, you will require adequate legal advice and then once you’re happy, your solicitor can draw this down once the legal requirements are satisfied. Your broker at Mortgage Lane will always be checking in on the application post offer, so we are chasing for you too!
Types of Commercial Buy to Let Mortgages
We assist experience and first time investors with Commercial Buy to Let Mortgage advice. Below we explain all the types of variations you might come across including letting types, tenant types and ownership types as well as information on how that will affect your mortgage options.
Semi Commercial Property
Getting a specialist buy to let product on a semi commercial property can be a big win for a borrower. Coming with more competitive rates than standard commercial lenders, it can be a lucrative product.
It is important the property will qualify on valuation or floor space % being in favour of residential. Floor space % some lenders will have a minimum percentage that they would like to be residential, such as 60%. Valuation split between residential and commercial some lenders may have a valuation split ratio of 50/50. Some semi commercial properties have one access point which is a more complex lending situation, it is ideal to have two, but we have lending options for either. For borrowers without experience, you may have fewer semi commercial mortgage options, as well as applicant that are non home owners. The use type of the commercial unit(s) may also impact lending options, as Commercial is a broad sector with a myriad of sub sectors, lenders may not allow for all sectors within their criteria, such as a gym or car garage. Therefore it is important to disclose as much information as possible to your broker to avoid facing any declined applications.
We assist with the following semi commercial mortgage enquries:
- HMO, serviced accommodation, or social housing above
- No separate access
- One utility for both units
- Kennels and Catteries mixed with residential
- Doctors and Veterinary practices
- Cafes and Takeaways
- Pubs
- Restaurants
- Offices
- Shops
- Garages
Serviced Accommodation
With Serviced accommodation (SA) there are often a lot of variations to the strategy that can make a deal more complicated and less attractive to the mainstream lenders. With Commercial Buy to Let mortgages there are often lenders that have relaxed criteria around SA, particularly in relation to tenant type.
Some lenders don’t recognise contractor SA’s for example, often we have to rescue cases declined with other brokers post valuation due to contractor income “not being enough” often the lenders who you shouldn’t use will request holiday let figures for these properties which is totally in accurate. This can show a reduced reflection of the venture and restrict loan sizes on stress testing. At Mortgage Lane, whether you are housing contractors, holiday makers, or corporate guests we will have a lender that understands your model.
Applicants Based Overseas
At Mortgage Lane we have a well connected global reach of customers who we regularly assist with Mortgage Advice against UK property.
For Expatriates otherwise known as Expats these are applicants where individuals are from the UK but now living abroad. Often we deal with expats in Dubai, America, Australia, New Zealand, China, Hong Kong, Singapore and many more locations.
Where every you are, we have lenders that are able to lend to expats in the following circumstances:
- No minimum income
- No experience
For Foreign nationals that are not UK domicile (tax status) are able to get a mortgage to buy UK property, many of our investors reside in the above location and lenders typically base their lending around experience, credit foot print in the UK and sometimes a minimum income requirement. We do have lenders that will lend to a foreign national where the applicants have low income or no experience.
At Mortgage Lane we also assist overseas nationals get UK property mortgages where the country them are residing and where deposit funds derive, may be high risk on the Basel Index which is an annual ranking used by lenders to grade the countries Anti Money Laundering (AML) procedures.
If you also require a processing agent to make yourself eligible for UK mortgages, then we can also recommend a suitable company to assist you.
What Makes Investor-Led units difficult to finance?
Investor-led projects, particularly off-plan ones, require specialised mortgage solutions due to several distinct factors:
Specialised Letting Types: Including student accommodation, serviced apartments, and hotel residences.
Exclusive Features: Such as on-site gyms, swimming pools, and reception services.
Compact Units: Many units are often smaller than 30m2, requiring unique financing considerations.
New Build Specifications: Ensuring suitable warranties and compliance with new construction standards.
Investor-Led Focus: Recognising the unique nature of investor-led properties in the mortgage process.
Specialist commercial buy to let mortgage options
We work with specialist lenders that allow for complex criteria points, which proves helpful to applicants looking to mortgage against properties assets that can be tricky to underwrite! At Mortgage Lane, our brokers well understand what these products are set to achieve such as the correct valuation for your specialist property as well as acceptance of letting types.
HMOs
We work with lenders that understand Houses of Multiple Occupation (HMO) however big or small. Sometimes, your HMO might not be licensable, or might not require planning if outside Article 4. Other HMO’s might be larger and you may need to use a lender allowing for specific valuation types or tenant types. We also deal with applicants that require bespoke personal criteria options for ethical financing, or applicants based overseas.
Specialist scenarios we assist with:
- Hybrid valuations
- Commercial valuation methods
- DWP tenants
- Housing association leases
- HMOs with up to 50 rooms
- Expats
- Foreign nationals
- Sharia Compliant
Social Housing
Sometimes where social housing requires more input particularly from carers, the mortgage options will become less especially on standard buy to let products. Commercial buy to let lenders being more commercially underwritten have products available to applicants housing tenants that require support whether that be in the day, night or remote care. If you are letting to a housing association that provides that care, or maybe your provide the care yourself we will recommend suitable mortgage products designed for that property type.
At Mortgage Lane, we offer bespoke mortgage solutions specifically designed for care assisted social housing. Our expertise extends to accommodating properties leased to a wide range of social housing entities, some of which manage complex care scenarios. We frequently assist clients in securing mortgages for properties dedicated to providing both short and long-term care within the social housing sector.
Given the diverse nature of social housing, it is crucial for clients to provide Mortgage Lane with the lease details of the property they intend to purchase or remortgage. This information allows us to effectively identify a lender who is receptive to the specifics of the lease, including the social housing provider involved, the lease term, and the type of tenants expected.
The tenant types we commonly see in social housing commercial buy to let mortgages include:
Care leavers
Individuals requiring assisted care
Ex-offenders
Understanding these tenant types helps us align mortgage products with the unique requirements of your social housing property, ensuring a tailored and effective mortgage solution.
Investor Lead
At Mortgage Lane, we specialise in facilitating the financing of units within investor-led residential complexes. Our expertise lies in addressing the unique funding needs of property investors eyeing off-plan developments. These investor-led projects are increasingly popular, yet they come with their own set of mortgage criteria complications. Understanding these complexities is crucial for a successful investment.
Tailored Mortgage Solutions
Our team at Mortgage Lane works closely with a network of lenders who are proficient in addressing these specific challenges. Whether these factors present individually or in combination, we are committed to providing bespoke commercial buy to let mortgage options to suit your investment needs.
Specialist mortgage scenarios:
- Social housing
- Care assistance
- Corporate lets
- Houses of multiple occupation (HMO)
- Serviced apartments
- Guest houses
- Semi commercial
- Expats
- Foreign nationals
Commercial Buy to Let Mortgages and Beyond
Unlike standard buy to let properties, Commercial Buy to Let mortgage affordability is calculated via the received rental income (for re-finances) or projected rental income (for purchases). This can be for the holiday let income, or lease income for a corporate or social housing lease.
For semi commercial property using a commercial buy to let product you may be looking for a lender that will be more relaxed around the covenant strength on the tenant lease and the experience/wealth of an applicant, when using the commercial income of a semi commercial property towards stress testing.
Sometimes mortgage lenders, or valuers may not provide a mortgage or valuation where a property is within the close proximity of a commercial property that may reduce kerb appeal or “re-saleability demand”.
Whatever the complexity, Mortgage Lane can assist you with your commercial buy to let mortgage.
This thread is not legal or tax advice, if anyone is looking to do anything noted in the contents, we recommend you speak with a qualified individual.
TRY OUR Commercial Buy to Let Mortgage Calcualtor
ANSWERS TO COMMON QUESTIONS AND QUERIES ABOUT commercial BUY TO LET MORTGAGES
How is affordability calculated on Semi Commercial mortgages?
Depending on the lender, applications will be assessed differently. Some lenders with a stricter criteria may require the applicants hit certain criteria in order to include the commercial part of the security towards stress testing, such as:
- Home ownership
- Good income
- Good lease covenant (strength of the tenant)
- Commercial tenants have been in situ for good time
Commercial Buy to let mortgage lenders will use the rental income of the security property, which is the property you are buying or remortgaging.
If you are buying in your own name, you may be stressed harsher than an applicant with a basic rate tax bracket. As an example a basic rate tax payer might be stressed at 125% and a higher rate tax payer at 145%. For a 5 year fixed, the lender may stress against the payrate of that product, such as 5.89% for example. In this case the calculation would go as follows for a basic rate tax payer, receiving rent of £600pcm from the property. 600 * 12 / 1.25 / 0.0589 = £97,792 (maximum loan)
It is interesting to know that Limited companies are stressed with a rental coverage of 125% mostly, unless it is a HMO. This means that if you are a higher rate tax payer, struggling with stress testing and achieving hoped loan sizes, you may be able to borrow more on a limited company mortgage.
Low leasehold Commercial buy to let mortgages?
Mortgage Lane specialises in commercial buy-to-let mortgages for properties with limited leasehold years remaining. Navigating the complexities of leasehold tenure in the commercial property sector is crucial for investors seeking mortgage approvals.
The Impact of Leasehold Tenure on Commercial Buy-to-Let Mortgages
Importance of Lease Length: In the commercial buy-to-let mortgage market, the remaining term of the property’s leasehold is a significant factor in lending decisions. Shorter lease terms can pose challenges, as they may reduce the property’s value and attractiveness as collateral.
Mortgage Lane’s Approach to Short Leasehold Commercial Properties
Working with Adaptable Lenders: We collaborate with lenders who are adept at handling commercial buy-to-let mortgages for properties with shorter lease terms, sometimes as low as 25 years remaining at the mortgage term’s end. These lenders may consider lease extension plans as part of the financing arrangement.
Understanding and Leveraging Lease Extensions
Lease Extensions in Commercial Buy-to-Let: Extending a leasehold can be a strategic move in the commercial sector. It not only enhances the property’s appeal to lenders but also increases its overall value, an essential aspect of commercial real estate investment.
Initiating Lease Extensions with Section 42 Notice: The lease extension process often starts with issuing a Section 42 Notice to the freeholder. This formal step, undertaken by a solicitor on behalf of the leaseholder, is crucial in extending the lease terms for commercial buy-to-let properties.
Benefits of Lease Extensions for Commercial Buy-to-Let Properties
Improving Mortgage Approval Chances: Extending the lease of a commercial property can significantly boost the likelihood of securing a buy-to-let mortgage, crucial for investors dealing with properties that have shorter leases.
Enhancing Investment Value: In addition to facilitating mortgage approvals, lease extensions can substantially increase the commercial property’s market value, bolstering the overall investment.
Guidance from Mortgage Lane: While Mortgage Lane offers expert advice in obtaining commercial buy-to-let mortgages for properties with short leaseholds, we remind clients that we are not qualified to provide legal, tax, or valuation advice. Consulting with legal professionals, especially regarding lease extensions, is highly recommended.
Our aim at Mortgage Lane is to assist investors in overcoming the challenges of acquiring commercial buy-to-let mortgages for short leasehold properties, ensuring they have the knowledge and resources to make informed investment decisions.
What income do I need to get a Commercial buy to let mortgage?
Whilst some mortgage lenders do enforce a minimum income requirement (often £25,000), the majority of lenders do not have a minimum income requirement, as long as some level of an income can be evidenced.
What is a day one commercial buy to let mortgage?
A “day one mortgage” allows you to remortgage your property without the traditional waiting period. Historically, many buy-to-let lenders adhered to a “six month rule”, which posed challenges, particularly for investors employing the Buy, Refurb, and Refinance (BRR) strategy. If you’re an investor looking to capitalise on this approach, the good news is you no longer have to wait 6 months to remortgage the property based on its updated post-refurbishment valuation!
How much deposit will I need for a commercial buy to let mortgage?
Commercial buy to let mortgage lenders generally require a minimum deposit of 20-25% of the property’s value, reflecting the higher risks associated with these types of investments. This means they are typically prepared to offer a loan of up to 75% of the property’s value. At Mortgage Lane, we have connections with specialist lenders who may consider offering a higher Loan to Value (LTV) ratio, up to 80%, particularly for borrowers with experience in property rental.
However, it’s important to remember that regardless of the maximum LTV ratio, the property must meet certain financial criteria to qualify for the desired loan size. This includes ‘stress testing’ to ensure that the rental income is sufficient to cover the mortgage payments. The property’s rental income must be robust enough to be deemed affordable under the terms of the loan, a crucial aspect in commercial buy to let financing.
What are the advantages of using interest only commercial buy to let mortgages?
For property investors, achieving returns of 15-25% on their investments is not uncommon. In such scenarios, opting to defer capital payments and choose an interest-only commercial buy to let mortgage can significantly benefit cash flow. For instance, if the interest rate stands at 7%, an investor would need to generate at least a 7% annual return to cover the borrowing costs. For those who are adept at securing higher returns, this approach allows for potential profit while managing an interest-only mortgage. This strategy can be particularly effective in the commercial buy to let market, where investment and return dynamics often differ from residential properties.
How is affordability calculated on holiday lets and short term lets?
With commercial buy to let mortgages affordability is calculated in a similar way to buy to lets sometimes and others not.
For example, holiday lets will be stressed using the income generated or estimated on the security, rather than the long term rental value.
Sometimes, you may require the lender to accept the rental type, such as:
- Contractors
- Corporate
- Holiday makers
If you’re purchasing a property as an individual, the financial stress test applied by lenders might be more stringent compared to basic rate taxpayers. For instance, a basic rate taxpayer could be assessed at 125%, whereas a higher rate taxpayer might be evaluated at 145%. For five-year fixed mortgages, lenders often use the pay rate of the product for stress testing, say 5.89%. As an example, for a basic rate taxpayer earning £600 per month in rent, the calculation would be: £600 x 12 / 1.25 / 0.0589, resulting in a maximum loan of £97,792.
Interestingly, limited companies usually undergo stress testing at a rental coverage of 125%, except in the case of HMO properties. This implies that if you’re a higher rate taxpayer facing challenges with stress testing and achieving desired loan sizes, opting for a limited company mortgage might allow you to borrow more.
Can I use a commercial buy to let mortgage on a Guest house?
At Mortgage Lane, we are specialists in commercial buy to let. Whether you’re a first-time buyer or an experienced investor, our expertise can guide you to the ideal mortgage product for your guest house, or Aparthotel.
Our network includes lenders that don’t require previous experience for a guest house purchase. We can assist applicants facing challenges like poor credit, non-homeownership, or high indebtedness by securing short-term funding. This approach provides a bridge during challenging periods, allowing for a later transition to more favourable financing options.
Investment Valuation in Guest House Mortgages:
Experience in managing a guest house can significantly broaden your mortgage options and positively impact valuation outcomes. Experienced borrowers can secure an investment valuation with their mortgage application, which factors in the guest house’s profitability.
For those without direct experience, there are still viable options. However, lenders may limit their loan-to-value (LTV) ratio to the property’s 90-day valuation, which can be a hurdle in the Buy, Refurbish, Refinance (BRR) strategy, especially in terms of fund recycling, until the business’s accounts reflect robust trading. Investment valuations that lenders rely on will consider both the business’s financial performance and the physical value of the property.
Can First time buyers get a commercial buy to let mortgage?
Yes.
Some lenders who offer commercial buy to let mortgages to first time buyers may limit the loan size to their maximum residential mortgage affordability. This will help the lender reduce any “back door buy to lets” this term is used by lenders for applicants looking to exploit the buy to let mortgage affordability rules to gain a higher loan size than they would otherwise be able to.
There is a way around being limited on loan size, you could buy on bridging first, refurb and refinance as a “property owner” rather than a first time buyer.
Otherwise, we deal with a variety of lenders allowing applicant with no experience to qualify on products lending against HMOs, Holiday lets and Semi commercial property.
Can I use a commercial buy to let mortgage if I am buying at auction?
Yes. However, it is not advised, especially if you are buying in a traditional auction with just 28 days to complete. Traditional auctions are more generous on time, but if you are buying via the traditional auction route then it is unlikely you will get a mortgage offer and subsequently, legal searches of which some councils are taking over 6 weeks to return.
Where do you broker Commercial Buy to Let mortgages in the UK?
We assist our clients with buy to let mortgages in England, Wales, Scotland and Northen Ireland.
Can I get a mortgage on a care assisted buy to let property?
Yes.
We assist many applicants in securing a mortgage against properties designated to providing short or long-term care. In these cases, as social housing is diverse, it is important to provide your broker at Mortgage Lane with the Lease for your proposed purchase or remortgage. This way, we can find a lender that is accepting of the covenant of the lease, including the social housing provider, term of lease and the proposed tenant type.
With social housing we see the following tenant types:
- Care leavers
- Elderly
- Domestic violence victims
- Assisted care
- Ex offenders
Can I get a buy to let mortgage near a commercial property?
Sometimes mortgage lenders, or valuers may not provide a mortgage or valuation where a property is within the close proximity of a commercial property that may reduce kerb appeal or “resale ability demand” but at Mortgage Lane, we deal with commercial buy to let mortgage lenders that allow for commercial property nearby.
Sometimes, it will depend on how invasive the commercial property is, this can be for a variety of types such as:
- Takeaways
- Restaurants
- Hotels
- Pubs
- Petrol Stations
- Light industrial
SPEAK TO ONE OF OUR EXPERT COMMERCIAL BUY TO LET MORTGAGE BROKERS TODAY
Do lenders require demand on serviced accommodation property?
A lender will ultimately rely on the valuer on whether the property has suitable demand for your letting type. Therefore, it is good to have you broker at Mortgage Lane check in with prospective lenders to see whether they permit your proposed letting type such as contractors, holiday makers, or corporate. This can reduce the chances of the valuer declining on the demand if your letting type is within lending policy.
A "day one mortgage" allows you to remortgage your property without the traditional waiting period. Historically, many buy-to-let lenders adhered to a "six month rule", which posed challenges, particularly for investors employing the Buy, Refurb, and Refinance (BRR) strategy. If you're an investor looking to capitalise on this approach, the good news is you no longer have to wait 6 months to remortgage the property based on its updated post-refurbishment valuation!
At Mortgage Lane, our brokers well understand what these products are set to achieve. For HMO properties, you might require a hybrid, or commercial valuation – as these are product dependant, we will assist in making sure you get the correct submission to make way for a smooth application and a subsequent completion. The flexibility of product criteria maintains throughout other aspects too such as lack of experience, tenant type (DWP, or Housing associations) and also specialist property types or covenants.
Do Commercial buy to let mortgages allow you to overpay?
Yes, some lenders offer a 10% overpayment facility, per annum.
This means that if your principal loan was £125,000 then you could repay £12,500 per annum as an overpayment without incurring a penalty within your fixed term.
However, it is important to note that many lenders are stripping this from their product ranges, so it is always worth checking to avoid paying exit fees on amounts repaid.
Commercial buy to let mortgages without new build warrenty?
Mortgage Lane is adept at supporting clients with commercial buy-to-let mortgages, especially those encountering issues related to new build warranties. Our expertise is crucial in dealing with the unique complexities that arise from warranty requirements in the commercial property market.
Addressing Warranty-Related Challenges in Commercial Buy-to-Let Mortgages
Navigating the Absence of New Build Warranties: Securing commercial buy-to-let mortgages for new constructions or conversions that lack traditional new build warranties can pose a significant challenge. We collaborate with lenders who are open to considering alternative assurances, such as the Professional Consultant’s Certificate (PCC), to provide practical solutions for overcoming these mortgage declines.
Tailoring Mortgage Solutions to Lender Specifications
Adapting to Lender Requirements: Understanding that lenders have diverse criteria regarding new build warranties in the commercial sector, Mortgage Lane is committed to guiding commercial landlords through these varying requirements, enhancing their chances of obtaining mortgage approval.
Customising Mortgage Options for Commercial Properties: Recognizing the unique challenges encountered by investors in the commercial buy-to-let market, we focus on sourcing mortgage solutions tailored to the specific needs of these properties. This includes addressing warranty issues for both new and converted commercial properties.
Mortgage Lane’s Dedication to Commercial Buy-to-Let Investors
Our objective at Mortgage Lane is to assist commercial buy-to-let investors who have encountered difficulties in mortgage approvals due to warranty issues. We strive to identify the most suitable commercial buy-to-let mortgage options, converting potential declines into successful investment ventures. By providing expert advice on alternative solutions to conventional new build warranties, we ensure our clients are equipped to make well-informed decisions regarding their commercial property investments.
How do I get a commercial buy to let mortgage with bad credit?
Just like standard buy to let mortgages, there are also commercial buy to let mortgage lenders that allow for applicants with adverse credit. So whether you have missed payments, CCJs, defaults or even an IVA, we can still source you with a suitable commercial buy to let lender. If you have discharged from bankruptcy then your options will become better after 3 years and also subsequently 6 years.
Can I get a commercial buy to let mortgage on a HMO?
Sometimes standard buy to let mortgage products allow for small HMOs, however, larger HMOs in the realms of 5 bedrooms plus may require a specific HMO product. Large HMOs again, 6 rooms and about that have been configured to be “fit for purpose” as a HMO, namely with En-suites etc, those assets usually seek a hybrid valuation to appreciate the investment bearing on the valuation, alternatively we can also seek commercial mortgage lending on the properties where necessary.
Do I need a minimum income for a Commercial buy to let mortgage?
No
Historically some lenders did have a minimum income for Commercial Buy to Let mortgages, however, a lot no do not. There are still a few that require a minimum income, but rest assured that if you are earning below £25,000 there are plenty of buy to let mortgage options out there for you.
What entities can take a commercial buy to let mortgage?
We arrange cost-effective BTL mortgages for:
- Individuals
- Special Purchase Vehicles/Limited Companies
- Limited Liability Partnerships (LLP)
- Trading companies
- Charities
- On/Offshore Trusts
Are commercial buy to let mortgages regulated?
It is important to note that Commercial Buy to let mortgages are not covered by the Financial Services Compensation Scheme, so borrowers should ensure they are dealing with a reputable lender.
LEARN MORE ABOUT COMMERCIAL BUY TO LET MORTGAGES
At Mortgage Lane, we see the most complex of Commercial Buy to Let mortgage applications, some of which make a good read for investors looking to learn from other applicants challenges, or for those effected by the topics! See more commercial buy to let mortgage topics covered in our blog here.
START YOUR JOURNEY WITH AN EXPERT COMMERCIAL BUY TO LET MORTGAGE BROKER
Let us know about your enquiry and one of the team at Mortgage Lane will be in contact to assist!