Why are businesses buying rather than renting?
- Cost certainty: repayments replace rent reviews and lease renewals.
- An asset: repayments build equity in a property the business or its owners hold.
- Control: freedom to adapt the building, subject to planning.
- Pension options: some owners buy through a SIPP or SSAS, with the business paying rent to the pension.
The trade-offs are a deposit, less flexibility to move, and exposure to property values.
How much deposit will I need?
Most lenders lend up to around 70% to 75% of the property's value for owner-occupiers, so expect a deposit of at least 25%. Specialist or trading properties such as hotels or care homes may need more. Terms are commonly up to 25 years, and some lenders offer interest-only periods.
Interest rates can be fixed or variable, and many commercial loans track the Bank of England base rate. Shorter fixed periods are common. Some lenders also accept additional security, such as another property, to reduce the cash deposit needed. Fees typically include arrangement, valuation and legal costs for both you and the lender.
Is buying actually cheaper than renting?
Not always in the short term. Mortgage repayments include capital, so monthly outgoings can exceed rent at first. Over a longer period, owning may cost less and builds an asset. Compare like for like:
- Current rent and expected rent reviews.
- Mortgage payments over the term.
- Repairs, insurance and maintenance you would now pay yourself.
- The opportunity cost of your deposit, which could otherwise fund the business.
Your accountant can help model the effect on cash flow and tax.
What do lenders assess?
For owner-occupiers, the business must show it can afford repayments from profits.
- Accounts: usually two to three years, plus management accounts.
- Debt service cover: lenders compare earnings (often EBITDA) to total debt payments.
- Rent saved: current rent can be added back, as it will stop.
- Directors: credit history, experience and often personal guarantees.
- The property: location, condition, use class and how easily it could be re-let or sold.
Should the business or the directors own it?
There are three common routes: the trading company buys it, a separate property company buys it and leases it to the trading business, or the directors or their pension buy it. Each has different tax, liability and succession effects. Holding property separately can protect it from trading risks but may need a formal lease. Take advice from your accountant before you agree a structure.
Whichever route you choose, lenders will want to see the lease terms and how rent flows between the entities.
What does it cost to buy commercial property?
In England, commercial purchases pay non-residential stamp duty. Rates are 0% up to £150,000, 2% to £250,000 and 5% above. Add valuation fees, legal costs for both sides, lender arrangement fees and possibly VAT if the seller has opted to tax. Our stamp duty calculator covers the basics.
What property types do lenders prefer?
Lenders are most comfortable with standard offices, retail units and light industrial or warehouse space in established locations. These are easier to re-let or sell if the business fails. Specialist trading properties such as pubs, hotels, care homes and petrol stations are valued partly on their trade, so lenders look closely at turnover and may offer lower loans. Properties needing major work may need bridging first.
Location and lease potential matter even for owner-occupiers, because lenders always consider their fallback position.
How to prepare your application
- Gather three years of accounts and current management accounts.
- Prepare a short summary of the business and why the property suits it.
- Include cash flow forecasts showing repayments are affordable.
- Have details of your deposit source ready.
- Check directors' personal credit files.
Well-prepared applications are typically quicker to assess and can widen lender choice.
What are the risks?
If trading dips, repayments still fall due. Commercial mortgages are often variable or have shorter fixed periods than residential loans. Values can fall, particularly for specialist buildings. Personal guarantees put directors' own assets at risk.
Commercial mortgages are not regulated by the FCA unless secured on a property where you or family will live in 40% or more of the space. In that case, see semi-commercial mortgages. OMB can compare high street banks, challengers and specialist lenders for your premises.
Commercial mortgagesFinance to buy or refinance offices, shops, warehouses and other business or investment premises.
Explore commercial mortgagesFrequently asked questions
What deposit do I need for a commercial mortgage?
Usually at least 25% to 30% for owner-occupied premises. Lenders typically cap borrowing at around 70% to 75% of value, and less for specialist or trading properties. A larger deposit can widen lender choice. You will also need funds for stamp duty, fees and possibly VAT.
Can a new business get a commercial mortgage?
It is harder but possible. Most lenders want two to three years of accounts. Some will consider newer businesses with experienced owners, strong projections, a bigger deposit or extra security. Good personal credit and relevant industry experience strengthen an application.
Can I buy commercial property through my pension?
Yes. SIPPs and SSASs can buy commercial property, and the business can pay rent to the pension. Pensions can borrow up to 50% of net fund value. Take advice from a pension specialist before proceeding. Lenders that offer pension lending are more limited, so a broker can help find one.
Are commercial mortgages regulated?
Generally no. Commercial mortgages are not regulated by the FCA, unless 40% or more of the property is used as a dwelling by you or a close family member. That means fewer consumer protections, so independent advice is valuable. A broker will explain the terms clearly.
How long can a commercial mortgage term be?
Commonly up to 25 years, and sometimes up to 30. Shorter terms are common for higher-risk properties. Some lenders offer interest-only periods at the start. The term you choose affects monthly payments and total interest. A longer term lowers monthly payments but usually costs more overall. Lenders also consider the property type and the age of the borrowers.
Will I need a personal guarantee?
Often yes, particularly for smaller companies. Lenders may ask directors to guarantee some or all of the loan, which puts personal assets at risk if the business cannot repay. Some lenders cap the guarantee at part of the loan. Consider independent legal advice.
Important: This guide is general information, not personal advice. Rules, rates and lender criteria change; speak to an adviser about your circumstances. Your home may be repossessed if you do not keep up repayments on your mortgage.