Construction and property

Commercial investment mortgages for let business property

How lenders size a mortgage on let offices, industrial units, shops and mixed-use buildings: rent cover, lease terms, tenant strength and paperwork.

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In short

A commercial investment mortgage is long-term borrowing secured on a building let to business tenants and repaid from the rent rather than from your trading profits. Lenders set the loan at the lower of a loan-to-value limit and the amount the rent can comfortably service, then adjust for lease length, break clauses, tenant strength and the type of building. Well-let industrial units attract the widest choice of lenders; short-let secondary offices the narrowest.

This page is for investors, family companies and property-holding SPVs buying or holding offices, industrial units, shops and mixed-use buildings let to business tenants. We are a broker, not a lender: we search our panel of 300+ lenders, including banks, challenger banks and specialist property lenders, for facilities from around £10,000 to £500,000+, with larger facilities available in suitable cases. If you occupy the building yourself, the commercial mortgage page is the better starting point; this one sits within our commercial property finance section and deals only with let commercial property. Residential lets, blocks of flats and any home someone lives in are outside what we arrange.

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Funding needs

Lease clauses that change the answer

Before valuation, send the leases to the lender's solicitor and your own, and look for the clauses that most often reduce an offer:

A tenant break that falls early in the loan term, especially one that is unconditional.

Whether the lease is protected by the security of tenure provisions in Part II of the Landlord and Tenant Act 1954, which give a tenant the right to a new lease in many cases, or contracted out of them. Protection supports continuity of income; contracting out makes it easier to regain the building but leaves income less certain at expiry.

Rent review terms: upward-only open market reviews, fixed uplifts or index-linked reviews each affect how the income is valued.

Service charge caps that leave the landlord paying for repairs the tenant would normally fund.

Rent-free periods or incentives still running, which reduce the passing rent the interest cover test can use.

The RICS Code for leasing business premises sets out what a well-drafted commercial lease should cover in England and Wales and is a useful check when granting new leases on a building you plan to mortgage.

How lenders view each type of building

Industrial and logistics units

Warehouses, trade counters and light industrial units in established estates are the most widely funded investment stock. Older units with asbestos roofs or low eaves heights are the exception, as valuers price in the cost of bringing them up to modern standards.

Offices

Lenders now draw a sharp line between modern, energy-efficient offices with long leases and older, secondary stock let on short terms. The latter can still be financed, but often at a lower loan-to-value, with a shorter term, or only by specialist lenders who will also look at the alternative use value of the building.

Shops and high street retail

Small shop units let to local businesses on high streets are fundable, but lenders look closely at the town, footfall, the length of the leases and how long the units took to let last time.

Mixed-use buildings

A shop or office with flats above is common in town centres. Lenders usually assess the commercial and residential income separately, and some limit how much of the value can come from the flats. We arrange the finance where the building is predominantly commercial and held by a business; where the residential element dominates, or the building is a block of flats, it falls outside what we arrange.

Specialist let property

Pubs let to operators, medical centres, gyms, children's nurseries and similar buildings are valued partly on how the tenant's business trades. Self-storage centres, where the owner runs the business rather than letting the building, have their own page on self-storage finance.

How an investment loan is sized

With a let building, your personal income and your trading company's profits are secondary. The lender is buying a share of a rent roll, so it applies two separate tests and offers the lower result.

The first is loan-to-value. For let commercial property this is usually set below the level lenders offer owner-occupiers, commonly up to around 60 to 70% of the valuation for conventional, well-let stock, and lower for specialist buildings or short leases.

The second is interest cover. The lender takes the passing rent (the rent actually payable today, not the rent you hope to achieve at review), deducts any irrecoverable costs, and checks that it covers the annual interest by a set margin. The interest is usually calculated at a stressed rate above the rate you will actually pay, so the test survives rises in the reference rate.

Illustration (hypothetical round figures, not a quote): an investor agrees to buy a pair of trade counter units for £1,000,000, let at a combined £70,000 a year. The lender's loan-to-value limit would allow £650,000. Its interest cover test, run at its stressed rate, supports only £550,000. The offer is £550,000, so the investor needs £450,000 plus purchase costs rather than the £350,000 they had budgeted.

Buying in a company or SPV

Many investors hold let commercial property in a limited company created only for that purpose. Lenders are used to this and will look through the company to its shareholders, who are usually asked for personal guarantees. A company borrower must register the lender's charge at Companies House as well as HM Land Registry; the GOV.UK guidance on registering a charge explains the 21-day deadline. Where a trading company owns spare space it lets to others, or you are considering a pension scheme as the buyer, our guide to buying through an SPV or pension compares the structures.

Investors with several buildings sometimes refinance them together as a portfolio. That can raise more in total, because stronger assets support weaker ones, but it usually means cross-charging, so a problem with one building gives the lender rights over all of them.

When a term mortgage is not the first step

Term investment lenders want a building that is let, lettable and in reasonable repair on the day they lend. When it is not, short-term money usually comes first:

A building bought on a 28-day auction timetable may need auction finance to complete before a term lender can finish its valuation and legal work.
A vacant or tired building needing new heating, lighting or roofing to reach a lettable standard is a case for refurbishment finance or a bridging loan.
Once new leases are signed, the building can be moved onto long-term debt against its let value; our commercial property refinance page covers that exit and what lenders want to see.

Risks and trade-offs

The main risk is a void. If a tenant fails or leaves at a break, you still owe the repayments and also pick up business rates on the empty space, insurance and security. Keep a reserve that could carry the building for the time it would realistically take to re-let.

Investment facilities also carry covenants tested during the loan, such as a maximum loan-to-value or minimum interest cover. A falling valuation or a lost tenant can breach them even when every payment has been made, giving the lender the right to ask for capital back. Interest-only terms improve cash yield but leave the whole debt to be repaid or refinanced at maturity, and gearing magnifies losses as well as returns. Where a guarantee is asked for, read our note on personal guarantees before signing.

Underwriting

What lenders look at

Unexpired lease term

Lenders measure how long the income is secure, both to lease expiry and to the first tenant break date. Across a multi-let building they use a weighted average, and many want it to run beyond the loan term or at least well into it.

Tenant covenant

A national occupier with published accounts is a stronger income stream than a young local business, though a rent deposit or a guarantor narrows the gap.

Vacant possession value

The valuer reports what the building would be worth empty. The closer that figure sits to the let value, the less the lender depends on any one tenant staying.

Repairing terms

On a full repairing and insuring lease the tenant bears maintenance and insurance. On internal repairing or multi-let buildings the landlord carries those costs, which reduce the net rent available to cover interest.

Energy performance

A building with an EPC below the legal minimum for letting cannot be re-let without works, so lenders treat a weak rating as a cost that will fall due, sometimes before the next lease event.

Your experience and other holdings

A first-time investor can borrow, but lenders are more comfortable where the owner has managed let commercial property before and has cash or other assets to cover a void.

Checklist

Documents you will need

A tenancy schedule showing each tenant, rent, lease start, expiry, break dates and review dates
Copies of all leases, side letters, rent deposit deeds and any licences for alterations
Service charge budgets and recent accounts for multi-let buildings
Rent payment history, including arrears, for at least the last year
The EPC for each unit and any recent building surveys
Agent's particulars or the heads of terms for the purchase, and evidence of your deposit and its source
A schedule of other property you own, with values, debt and rents
For a company buyer: the structure chart, filed accounts if it has traded, and ID and asset statements for each director and shareholder

Side by side

Compare your options

How the main business finance structures work. Lenders set their own terms, so treat this as a guide to the questions to ask.

Option	How you repay	Security	Often used for
Unsecured business loan	Fixed instalments, usually monthly	No charge over assets; a personal guarantee is usually required	Growth, stock, tax bills and cash flow
Secured business loan	Fixed instalments, often over a longer term	A charge over property or other assets	Larger sums, property and refinancing
Revolving credit facility	Interest on what you draw; repay and redraw	Varies by lender and case	Recurring or uneven cash flow gaps
Merchant cash advance	A share of future card takings	No charge over assets	Card-taking businesses with uneven months
Asset finance	Regular payments over the life of the asset	The asset being financed	Equipment, vehicles and machinery
Invoice finance	Settled as customers pay their invoices	Your unpaid invoices	Businesses waiting on customer payment

General information only. Every lender has its own criteria, and all finance is subject to status.

How we arrange an investment mortgage

We take the tenancy schedule, the leases and the price, and run the loan-to-value and interest cover tests to show the likely borrowing range.
We flag lease issues, such as early breaks or rent-free periods, before they surface at valuation.
We approach lenders on our panel with appetite for that building type, lease profile and borrower structure, and obtain indicative terms.
We compare term, repayment profile, covenants, fees and early repayment charges with you.
The chosen lender values the building, underwrites and makes its decision; we keep valuer, solicitors and lender moving to completion. It is free to enquire; any broker fee is disclosed separately before you proceed.

FAQs

Questions clients ask

Can I have an interest-only commercial investment mortgage?

Some lenders offer interest-only terms, or a period of interest-only at the start, on let commercial property with long leases and moderate borrowing. You will need a credible plan to clear the capital at maturity, usually a sale or refinance, and lenders tend to cap the loan-to-value more tightly than on a repayment basis.

What if my own trading company is the tenant?

Lenders usually treat a building let to a company you control as close to owner-occupied, because the rent depends on the same business. They will look at the trading company's accounts rather than just the lease. Our page on buying your business premises covers that route.

Can I get a mortgage on a partly vacant building?

Yes, but lenders normally only count the rent from let units in the interest cover test and value the vacant space cautiously. Specialist lenders may lend more against a credible letting plan. Where most of the building is empty, a bridge until the space is let is often the cleaner route.

How long before a lease ends should I refinance?

Ideally while the tenant still has several years left or has already renewed. A lease with little time to run reduces what most term lenders will offer, so agree a renewal or new lease first where you can, then refinance on the longer income.

Can a first-time investor get a commercial investment mortgage?

Yes, a first-time investor can get a commercial investment mortgage, but the choice of lenders is narrower and terms may be more cautious. Lenders are more comfortable where the owner has managed let commercial property before and has cash or other assets to cover a vacant period. A strong tenant on a long lease helps offset limited experience. Our DSCR calculator helps you check how comfortably the rent covers the debt.

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