Glossary · UK
What is Commercial Mortgage?
A mortgage secured against a non-residential property, such as an office, shop, warehouse or factory, used to buy or refinance premises for a business or as a commercial investment.
Full Definition
A commercial mortgage is a loan secured against commercial property -- premises used for business purposes such as offices, retail units, warehouses, industrial units, pubs, hotels or mixed-use buildings -- rather than a residential home. It can be taken out by a business to buy the premises it trades from (an owner-occupier commercial mortgage) or by an investor to buy a property that will be let to business tenants (a commercial investment mortgage), and lenders assess the two very differently: owner-occupier lending is typically underwritten against the trading business's accounts, profitability and sector, while investment lending is assessed mainly on the rental income the property can achieve relative to the loan, similar in principle to buy-to-let mortgage underwriting. Commercial mortgages are almost always individually underwritten (there is very little in the way of standardised, off-the-shelf rates as seen in residential lending), typically run to a maximum loan-to-value of around 65 to 75%, carry higher interest rates and arrangement fees than residential mortgages to reflect the greater risk and lower liquidity of commercial property, and are often available on both repayment and interest-only bases depending on the lender and the strength of the business case.