A commercial mortgage can be used to buy a wide range of properties that are intended for business use rather than as a primary residence. This includes everything from standard offices and shops to more specialised assets like warehouses, pubs, or even land for development. Lenders will carefully assess the property type, your business’s financial health, and your overall plan before approving finance.

What Types of Properties Can Be Purchased With a Commercial Mortgage?

If you are looking to buy a property for your business or as a commercial investment, a commercial mortgage is often the most suitable form of finance. Unlike a residential mortgage used for buying your home, a commercial mortgage is specifically designed for premises where business activities take place. But what types of properties can be purchased with a commercial mortgage? The answer is broad, covering almost any property that isn’t your personal home.

Lenders are generally open to financing a wide variety of buildings and land, but they will categorise them based on risk and intended use. The strength of your application will depend not just on the property itself, but also on your business plan, your financial history, and the size of your deposit.

Key Commercial Property Categories

Most commercial mortgage applications fall into a few standard categories. Lenders are very familiar with these property types, making the process relatively straightforward if your business case is strong.

• Retail Properties: This is a vast category that includes high street shops, retail warehouses, showrooms, and units within shopping centres. Lenders will want to see evidence of good footfall, a solid local market, and a clear business plan for the retail operation.
• Office Spaces: From a single office unit for a small startup to an entire office block for a large corporation or to be let out to multiple tenants. The location, quality of the building, and existing tenancy agreements (if any) are key factors.
• Industrial and Warehouse Properties: This includes factories, storage facilities, distribution centres, and workshops. Lenders will assess factors like accessibility for large vehicles, the condition of the building, and its suitability for your intended industrial process or storage needs.
• Leisure and Hospitality Sector: This category covers properties like pubs, restaurants, cafes, hotels, guesthouses, and gyms. These are often seen as more specialised, and lenders will likely want to see that you have direct experience in the hospitality or leisure industry.
• Healthcare Premises: This includes properties for dental practices, GP surgeries, veterinary clinics, physiotherapy centres, and care homes. Given the stable demand for healthcare, these can be attractive properties for lenders, provided the business is run by qualified professionals.

Can I Get a Mortgage for More Specialised Properties?

Beyond the standard categories, commercial finance can also be secured for more unique or complex property types. These often require a more detailed application and a lender with expertise in that specific niche.

Semi-Commercial (Mixed-Use) Properties

A semi-commercial or mixed-use property is one that combines both residential and commercial elements. The classic example is a shop with a flat above it. These properties are very popular with investors as they provide multiple income streams.

When seeking a mortgage for a mixed-use property, lenders will look at the balance between the commercial and residential parts. If the commercial element makes up 40% or more of the property’s total area or value, you will typically need a commercial mortgage. If it’s less than 40%, you might be able to use a specialist buy-to-let mortgage.

Land for Development

It is possible to purchase land—with or without buildings on it—using a form of commercial finance. This could be for building a new commercial property from scratch or for a residential development. Finance for land is highly specialised. Lenders will almost always want to see that at least outline planning permission is in place before they will consider lending. The loan will be based on the land’s current value and your detailed plans for its development.

Houses in Multiple Occupation (HMOs)

While HMOs are residential, they are treated as a commercial enterprise by lenders, especially larger ones. A small property let to three or four tenants might be funded with a buy-to-let mortgage. However, for larger HMOs (typically with five or more tenants forming more than one household), most lenders will require you to apply for a commercial mortgage. This is because they view the property as a full-scale business operation.

What Else Do Lenders Look At?

The type of property is just one piece of the puzzle. To understand if you can get a commercial mortgage, you also need to consider what lenders will assess about you and your business.

• Business Plan and Financials: You must prove that your business is viable and can comfortably afford the mortgage repayments. Lenders will want to see historic accounts, profit and loss statements, and realistic financial projections.
• Experience: For specialised businesses like pubs or care homes, lenders strongly prefer applicants with a proven track record in that sector.
• Deposit Size: Commercial mortgages generally require a larger deposit than residential loans. You should typically expect to need a deposit of at least 25% of the property’s purchase price, though this can be as high as 40% for more specialist properties or newer businesses.
• Credit History: Lenders will perform a detailed credit check on you and your business to assess risk. It’s a good idea to know where you stand before you apply. Get your free credit search here. It’s free for 30 days and costs £14.99 per month thereafter if you don’t cancel it. You can cancel at anytime. (Ad)

The Importance of Commercial Property Use Classes

In the UK, all commercial properties are categorised into ‘Use Classes’ by the government. This system determines what the property can legally be used for. For example, a property in Use Class E can be used as a shop, office, or restaurant without needing new planning permission. However, changing a pub (which falls into a ‘sui generis’, or unique, category) into an office would require a formal planning application.

Lenders will pay close attention to the property’s designated use class to ensure it matches your business plan. If you intend to change the use, the lender may want proof that you have secured the necessary planning permission before they will release the funds. You can learn more about specific categories on the official UK government guidance on business property use classes.

Understanding the Risks and Responsibilities

Taking out a commercial mortgage is a major financial commitment that ties your business’s future to a physical asset. It’s crucial to understand the responsibilities involved. Failing to keep up with repayments can have serious consequences. Your property may be at risk if repayments are not made.

This could lead to legal action, the lender appointing a receiver to manage the property, or ultimately, repossession. Missed payments can also result in additional charges, increased interest rates, and damage to your credit profile, making future borrowing more difficult and expensive.

In summary, the answer to ‘what types of properties can be purchased with a commercial mortgage?’ is reassuringly broad. Whether you are buying a simple office, a complex industrial unit, or a mixed-use investment, there is likely a finance solution available. The key to a successful application is a strong, well-documented business case, a healthy deposit, and a clear understanding of the lender’s criteria for both you and the property you wish to buy.