The most common type of commercial mortgage is an owner-occupied commercial mortgage, where a business purchases the premises it operates from.
These mortgages are typically used by businesses that want to buy offices, retail units, warehouses or other commercial buildings rather than continue paying rent to a landlord.
However, commercial mortgages can also be used by property investors who purchase commercial buildings to generate rental income.
Owner-Occupied Commercial Mortgages
Owner-occupied commercial mortgages are the most common because many businesses prefer to own their premises rather than lease them.
By purchasing their property, a business may be able to:
- Build equity in the building over time
- Gain greater control over the premises
- Avoid potential rent increases
- Secure long-term stability for the business
Lenders often assess these loans based on the financial strength of the business, including trading accounts, profitability and affordability.
Commercial Investment Mortgages
Another common type of commercial mortgage is an investment mortgage used by property investors.
In this scenario, the borrower purchases a commercial building that is leased to tenants, with rental income helping to support the mortgage repayments.
Typical commercial investment properties may include:
- Retail units
- Office buildings
- Industrial premises
- Mixed-use or semi-commercial properties
For these mortgages, lenders will often assess the strength of the tenant, the lease agreement and the stability of the rental income.
Semi-Commercial Mortgages
Semi-commercial mortgages are also common where a property contains both residential and commercial elements.
Examples might include:
- A shop with a flat above
- A mixed-use building with offices and apartments
- A property combining retail space with residential accommodation
These properties may require lenders that specialise in mixed-use assets.
How Lenders Assess Commercial Mortgages
Regardless of the property type, commercial mortgages are usually assessed individually rather than through automated lending systems.
Lenders may consider factors such as:
- The borrower’s financial position
- The deposit and loan-to-value ratio
- The property type and location
- The borrower’s experience
- The income generated by the property
Because commercial lending criteria vary between lenders, the structure of the mortgage can differ significantly from one transaction to another.
Why Many Borrowers Use Commercial Mortgage Brokers
The commercial lending market can be complex, with many lenders specialising in particular property types or borrower profiles.
Commercial mortgage brokers can help borrowers by:
- Identifying lenders suited to the transaction
- Structuring the application correctly
- Comparing multiple funding options
- Presenting the case clearly to lenders
This can help borrowers navigate the commercial lending market more efficiently.
Related Guides
- How long does it take to get a commercial mortgage approved
- How do I prepare for a commercial mortgage
- What is the longest term for a commercial mortgage
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.
