A commercial mortgage can be used to purchase, refinance or release equity from property that is used for business purposes or generates commercial income.
These mortgages are designed for properties that fall outside standard residential lending criteria. They are commonly used by business owners buying premises, property investors acquiring commercial assets and landlords purchasing mixed-use buildings.
Because commercial lending is assessed individually by lenders, the structure of the mortgage may vary depending on the property and borrower.
Buying Business Premises
One of the most common uses of a commercial mortgage is purchasing premises for a business.
Instead of renting a building, some businesses choose to buy their offices, retail units or industrial premises using commercial property finance.
Owning the property can offer several advantages, including:
- Building equity in the property over time
- Greater stability for the business
- Control over the use and layout of the premises
- Protection from rising rental costs
Lenders usually assess these mortgages based on the financial strength of the business and its ability to support the repayments.
Investing in Commercial Property
Commercial mortgages are also widely used by property investors.
In this case, the borrower purchases a commercial property and leases it to tenants, generating rental income.
Typical commercial investment properties include:
- Office buildings
- Retail units and shops
- Industrial premises
- Warehouses
- Mixed-use or semi-commercial properties
Rental income from tenants may help support the mortgage repayments.
Purchasing Semi-Commercial Property
Semi-commercial properties combine residential and commercial elements within the same building.
Examples might include:
- A shop with a flat above
- Retail premises with residential accommodation
- Mixed-use buildings containing offices and apartments
These properties may require specialist lenders with experience in mixed-use property finance.
Refinancing Commercial Property
Commercial mortgages can also be used to refinance an existing property.
Borrowers may refinance to:
- Secure more favourable lending terms
- Release equity from the property
- Consolidate existing borrowing
- Fund business growth or property investment
Refinancing can allow property owners to access capital tied up in their assets while continuing to retain ownership of the property.
Expanding a Commercial Property Portfolio
Property investors often use commercial mortgages when expanding a portfolio of commercial buildings.
As portfolios grow, borrowers may refinance existing properties or obtain additional mortgages to fund new acquisitions.
Lenders will usually review the borrower’s financial position, property experience and the income generated by the portfolio when assessing further borrowing.
Why Many Borrowers Use Commercial Mortgage Brokers
Commercial lending criteria vary significantly between lenders, and many lenders operate primarily through intermediaries rather than dealing directly with borrowers.
Commercial mortgage brokers can help borrowers by:
- Identifying lenders suited to the transaction
- Structuring the application appropriately
- Comparing multiple funding options
- Presenting the case clearly to lenders
This can make it easier to navigate the commercial property finance market.
Related Guides
- How do mortgages work on commercial property
- How much deposit is required for a commercial mortgage
- What are current commercial mortgage rates in the UK
Need Help Arranging Commercial Property Finance?
Commercial mortgage options can vary widely depending on the property type, borrower profile and lender criteria.
Explore our Best Commercial Mortgage Brokers in the UK guide to compare experienced advisers who specialise in arranging commercial property finance.
