How commercial investment mortgages work
An investment mortgage is for property let to business tenants: shops, offices, industrial units, or a whole parade. Lenders on our panel go up to 75% of the value. The rent, the lease and the tenant drive the terms far more than they do on buy-to-let.
The rent stress test
The lender checks the rent covers the mortgage payments at a stressed rate, typically by 125–150%, and more where the tenant is weak or the lease is short. Some lenders test the interest only; others test capital and interest, which allows a smaller loan from the same rent. The calculator above lets you try both.
What lenders look at
- The tenant: a national company or established local business supports better terms than a start-up.
- The lease: years left to run, break clauses, rent reviews, and whether it is a full repairing and insuring lease.
- Several tenants: spread risk, assessed on the income across all units and the average unexpired lease term.
- Vacancy: empty units can be lent on, but at lower LTVs and usually with an allowance for re-letting.
- You: commercial property experience and your wider portfolio.
Semi-commercial and mixed-use
A shop with flats above is usually semi-commercial, where specialist lenders lend up to 75% and often test the residential and commercial rents separately. It is often easier to finance than a purely commercial building.
How commercial lenders stress test
Every commercial lender asks the same question: if rates rise, can the income still pay the loan? How they test it depends on where the income comes from.
| Owner-occupied | Investment (let) | |
|---|---|---|
| Income tested | Business profits (EBITDA, with add-backs) | Rent from the tenants |
| Test | Debt service cover: profits cover the yearly capital and interest, typically 1.25–1.5 times | Interest cover: rent covers the interest, typically 125–150%, higher for weaker tenants |
| Stress rate | The pay rate plus a margin, or a floor rate, whichever is higher | The pay rate plus a margin, or a floor rate; longer fixes are often tested nearer the pay rate |
| Existing debt | Other business loans, leases and finance count against the profits | Usually just this loan |
| Max LTV | Up to 80% for strong, profitable businesses | Up to 75% |
Because many commercial loans are on capital repayment over 15–25 years, the test often covers the capital as well as the interest. That's why a commercial loan can be limited by the income even at a modest LTV.
Frequently asked questions
What LTV can I get on a commercial investment mortgage?
Lenders on our panel go up to 75%, with the best terms for strong tenants on long leases. Vacant or specialist property usually needs a bigger deposit.
How is a commercial investment mortgage stress tested?
The rent must cover the mortgage payments at a stressed rate, typically by 125–150%. Some lenders test interest only, others capital and interest.
Does the lease length matter?
Yes. Lenders look at the years left to run and any break clauses. A short or soon-breakable lease reduces what they will lend.
Can I get a commercial mortgage on a vacant property?
Yes, from specialist lenders, usually at lower LTVs and sometimes with a short-term loan until it is let.
Is semi-commercial easier to finance?
Usually. A shop with flats above is lent on by more lenders, often at up to 75%, with the residential and commercial rents assessed together.