A commercial mortgage can be used to purchase many different types of property in the UK, from offices and shops to warehouses, industrial units, medical premises, restaurants, hotels and mixed-use buildings.
However, not every commercial property is assessed in the same way. The type of property, how it is used, whether it is owner-occupied or let to tenants, its location, condition and potential resale market can all affect how lenders assess an application.
For example, a business buying an office to operate from may be assessed primarily on the strength and affordability of the trading business. An investor buying a tenanted warehouse may be assessed more heavily on rental income, lease terms and the strength of the tenant.
This means that understanding the property type is an important first step when considering commercial property finance.
In this guide, we look at the main types of property that can potentially be purchased with a commercial mortgage, what lenders typically consider for each type and when specialist finance may be more appropriate.
What Is a Commercial Mortgage?
A commercial mortgage is a loan secured against a property used for business, commercial or investment purposes. It can allow a business or investor to purchase property without funding the entire acquisition from their own capital.
The property normally provides security for the lender, while the borrower makes repayments over an agreed period.
Commercial mortgages can potentially be used by:
- Business owners buying their own premises
- Property investors purchasing commercial property to let
- Companies buying investment property
- Sole traders and partnerships
- Limited companies
- Certain property companies and SPVs
The exact eligibility and lending terms depend on the borrower, property and lender.
If you are considering purchasing commercial property, you can learn more about the available commercial mortgage solutions before deciding which route may be suitable.
What Types of Properties Can You Buy With a Commercial Mortgage?
There is no single list that applies to every lender. Commercial mortgage providers have different lending criteria and preferences, so a property that is straightforward for one lender may require specialist consideration from another.
That said, the following property types are commonly considered for commercial mortgage finance.
1. Offices
Office properties are one of the most recognisable types of commercial property.
A commercial mortgage could potentially be used to buy:
- A small office unit
- A standalone office building
- A multi-floor office
- A business centre
- A professional services office
- A converted office building
- A multi-let office investment
For an owner-occupied purchase, the lender may focus on the financial strength of the business that will operate from the premises.
For an investment property, the lender is more likely to consider factors such as rental income, lease length, tenant quality and the property’s location.
What do lenders consider when financing an office?
Location can be particularly important.
A centrally located office with strong transport links and established demand may have a different risk profile from a highly specialised office in an area with limited demand.
The lender may also consider:
- Current occupancy
- Existing leases
- Tenant quality
- Remaining lease terms
- Property condition
- Local demand
- Comparable rental values
- Marketability
An office occupied by a strong tenant on a long lease can therefore present a different lending proposition from an empty office requiring significant refurbishment.
2. Shops and Retail Units
Retail properties can also be financed with commercial mortgages.
Examples include:
- High street shops
- Retail units
- Parade shops
- Trade counters
- Retail park units
- Larger commercial retail premises
A business might purchase a shop to operate its own retail business, while an investor could purchase a retail unit and lease it to another business.
For an owner-occupied retail property, the lender may consider the trading performance of the business alongside the property.
For an investment purchase, the rental income and tenant covenant can become more important.
What affects the finance available for a retail property?
Retail property can vary significantly from one location to another.
A shop on a busy high street with established footfall may have a different market profile from a specialist retail unit in a weaker location.
Lenders may consider:
- Location
- Footfall
- Local competition
- Tenant strength
- Lease length
- Rental income
- Property condition
- Alternative uses
- Demand from potential buyers
The property’s flexibility can also matter. A building that could appeal to several types of occupier may potentially be easier to sell than a highly specialised unit.
3. Warehouses
Warehouses are another common category of commercial property.
Businesses may use commercial mortgages to purchase warehouses for:
- Storage
- Distribution
- E-commerce
- Wholesale
- Manufacturing support
- Logistics
- Business operations
Investors may also purchase warehouses to let to commercial tenants.
A warehouse can range from a small local storage facility to a large distribution building, so lenders will assess the specific property rather than simply categorising every warehouse in the same way.
What do lenders look for in a warehouse?
Location can be particularly relevant.
Access to major roads, motorways, ports, airports and established commercial areas can influence demand.
Other considerations may include:
- Floor area
- Loading facilities
- Yard space
- Ceiling height
- Access for commercial vehicles
- Building condition
- Planning and permitted use
- Tenant quality
- Lease terms
- Local demand
A modern warehouse with strong transport links and a long-term tenant may present a very different proposition from an older building in a weaker location.
4. Industrial Units
Industrial property covers a broad range of buildings and uses.
A commercial mortgage could potentially be used to buy:
- Light industrial units
- Manufacturing premises
- Workshops
- Industrial estates
- Engineering premises
- Production facilities
- Industrial investment properties
Businesses may choose to purchase an industrial unit rather than continue renting because ownership can provide greater control over the premises and future use, subject to planning and legal restrictions.
Owner-occupied industrial property
If the business itself will operate from the property, the lender may consider the company’s accounts, profitability and ability to service the borrowing.
The property will also be assessed as security.
For example, a manufacturing company buying a £1 million industrial unit may need to demonstrate that its existing trading performance can support the proposed borrowing.
Industrial investment property
An investor buying an industrial unit to let to a third party may instead be assessed more heavily on the rental income and strength of the tenant.
Lease terms can therefore be particularly important.
5. Factories and Manufacturing Premises
Factories and manufacturing buildings can potentially be financed through commercial mortgages, although specialist considerations may apply.
A manufacturing property could include:
- Production facilities
- Engineering premises
- Food production units
- Specialist manufacturing buildings
- Workshops
- Industrial buildings with offices
The lender may need to understand both the property and the underlying business.
Why can factories require more detailed assessment?
Some manufacturing properties are highly specialised.
A building designed specifically for one production process may have a smaller pool of alternative buyers than a standard industrial unit.
Lenders may therefore consider:
- The property’s alternative use
- Specialist equipment
- Planning restrictions
- Environmental considerations
- Business performance
- Location
- Marketability
- Replacement or adaptation costs
The underlying business can also be an important part of the application where the property is owner-occupied.
6. Restaurants, Cafés and Food Premises
Restaurants and cafés can sometimes be purchased using commercial mortgage finance.
Potential examples include:
- Restaurants
- Cafés
- Takeaways
- Food-led businesses
- Freehold restaurant premises
- Restaurant investments
These transactions can involve both property and trading considerations.
If the business buying the property will operate the restaurant, the lender may want to understand the trading history and financial performance.
If the property is being purchased as an investment and already has a tenant, the lender may focus more heavily on the lease and rental income.
What can make restaurant property different?
A restaurant’s value may depend partly on its trading potential and permitted use.
Features such as extraction systems, kitchen infrastructure, seating capacity, licensing requirements and planning restrictions may all be relevant.
The property’s ability to attract alternative occupiers can also influence how the lender views the security.
7. Pubs and Licensed Premises
Pubs and licensed premises can potentially qualify for commercial mortgage finance, but they can be more specialist than a standard office or industrial unit.
Examples include:
- Freehold pubs
- Gastropubs
- Bars
- Licensed restaurants
- Pubs with accommodation
- Hospitality properties
The lender may need to consider both the property and the trading business.
For an owner-occupied pub, trading accounts can be particularly important.
For an investment property, the lease, tenant and rental income may take greater importance.
Licensing, trading performance, location and the condition of the property can all affect the assessment.
Where a property includes residential accommodation alongside the commercial element, the transaction may also fall into the semi-commercial or mixed-use category.
8. Hotels and Guest Houses
Hotels, guest houses and other hospitality properties can potentially be financed through commercial property lending.
However, these properties are often assessed differently from a straightforward investment property because the property’s income can be closely connected to the operator’s business performance.
A lender may consider:
- Occupancy
- Revenue
- Profitability
- Location
- Number of rooms
- Property condition
- Trading history
- Local competition
- Business plan
For an established hotel with a strong trading history, the lender can assess historical performance alongside the property itself.
For a newly acquired or repositioned hotel, the lender may need to consider forecasts and the proposed business strategy.
9. Medical and Healthcare Premises
Healthcare properties can include:
- GP surgeries
- Dental practices
- Private clinics
- Veterinary practices
- Healthcare centres
- Care homes
Some of these properties can be purchased by the business operating from them, while others can be acquired as investments.
The lender may consider the specialist nature of the building, the operator, the business’s financial performance and any relevant regulatory requirements.
For an owner-occupied medical practice, the trading business can therefore be an important part of the application.
A specialist property may also require additional consideration because its value could be closely linked to its permitted use and the demand from potential occupiers.
10. Care Homes
Care homes are another type of commercial property that can potentially be financed, although specialist underwriting may be required.
The lender may look at:
- The property’s value
- Occupancy
- Trading performance
- Operator experience
- Regulatory position
- Quality of the premises
- Local demand
- Existing debt
- Business forecasts
Care home finance can involve more detailed assessment because the underlying business and property are closely connected.
A property investor purchasing an established care home with an experienced operator may therefore present a different lending proposition from a new operator acquiring a property without an established trading history.
11. Mixed-Use and Semi-Commercial Properties
Mixed-use property combines commercial and residential elements.
Common examples include:
- A shop with a flat above
- A restaurant with residential accommodation
- An office with a residential unit
- A pub with living accommodation
- A building containing commercial premises and flats
These properties can often require specialist lending because they do not fit neatly into either standard commercial or standard residential lending.
If you are looking at a property containing both residential and commercial elements, a semi-commercial mortgage may be a more appropriate route depending on the property’s structure and intended use.
Why are mixed-use properties treated differently?
The lender needs to assess both elements of the property.
For example, imagine a building containing:
- A ground-floor retail unit
- Two flats above
The lender may consider the rental income from the shop and the residential units, the relative proportion of commercial and residential space, the leases and the property’s overall value.
The exact lending treatment can vary between lenders, which is why it is important to establish how the property will be classified before making assumptions about the available finance.
12. Business Premises
Commercial mortgages are not limited to properties purchased purely as investments.
A business can potentially use a commercial mortgage to buy the premises from which it operates.
Examples include:
- An accountant buying an office
- A retailer buying a shop
- A builder buying a workshop
- A manufacturer buying a factory
- A logistics company buying a warehouse
- A dental practice buying its surgery
- A professional firm buying its office
This is commonly referred to as an owner-occupied commercial mortgage.
If your business intends to operate from the property, an owner occupier commercial mortgage may be worth considering, subject to the lender’s criteria.
The lender will typically want to understand both the property and the financial strength of the business.
13. Commercial Investment Property
Commercial mortgages can also be used to purchase property that will be rented to another business.
This could include:
- Offices
- Shops
- Warehouses
- Industrial units
- Retail units
- Business parks
- Multi-let properties
In an investment transaction, the lender may focus particularly on the property’s ability to generate sufficient rental income to support the borrowing.
What is important for an investment property?
The lender may consider:
- Current rent
- Lease length
- Tenant strength
- Rental payment history
- Property value
- Vacancy risk
- Location
- Market demand
- Potential rental growth
A property with a strong tenant on a long lease may be viewed differently from an empty property or one with a short lease approaching expiry.
14. Multi-Let Commercial Buildings
A multi-let commercial property contains multiple occupiers, such as several offices, shops or industrial units.
These properties can potentially be attractive to investors because income is spread across multiple tenants.
However, lenders may also consider the additional complexity.
For example, if a building contains ten units and two are vacant, the lender may want to understand why they are vacant and how easily they could be re-let.
Other factors can include:
- Tenant concentration
- Lease lengths
- Occupancy
- Rental income
- Property management
- Condition
- Local demand
The quality and diversity of the tenant base can therefore form an important part of the lending assessment.
15. Trade Counters and Commercial Units
Trade counters combine aspects of retail, warehousing and industrial property.
They can be used by businesses selling building materials, trade supplies, automotive products and other goods to professional customers.
A commercial mortgage may potentially be used to purchase a trade counter for owner occupation or as an investment.
Lenders can consider the property’s location, access, size, use, tenant and marketability.
16. Automotive Properties
Automotive-related properties can include:
- Garages
- MOT centres
- Vehicle workshops
- Car sales premises
- Body shops
- Petrol stations
These can require specialist assessment because the property and business operation are often closely connected.
For an owner-occupied automotive property, the lender may examine the business’s trading accounts and profitability as well as the property.
Planning, licensing, environmental matters and the property’s specialist features can also be relevant.
17. Nurseries and Schools
Educational properties such as nurseries, pre-schools and independent schools can potentially qualify for commercial mortgage finance.
However, the lender may consider factors beyond the property’s bricks-and-mortar value.
These can include:
- Trading performance
- Occupancy
- Operator experience
- Regulatory requirements
- Property condition
- Local demand
- Business forecasts
Where the property is highly specialised, the lender may also consider its alternative use and marketability.
Can You Buy a Commercial Property With a Commercial Mortgage and Rent It Out?
Yes, commercial mortgages can potentially be used to purchase property as an investment and rent it to commercial tenants.
The lender may assess the transaction based on the expected or existing rental income and the quality of the tenant.
For example, an investor purchasing a £750,000 office building with an established tenant may need to provide information about the lease, rent and tenant.
This differs from buying a property for your own business, where the lender may focus more heavily on the trading performance of your company.
Can You Buy a Commercial Property Through a Limited Company?
Potentially, yes.
A limited company can be used to purchase certain commercial properties, depending on the lender and transaction structure.
The lender may assess:
- The company
- Directors
- Shareholders where relevant
- Existing liabilities
- Business performance
- Property
- Proposed use
- Repayment strategy
Some investors may also use a special purpose vehicle for property ownership, although the suitability of a particular structure depends on the transaction and professional advice.
Can You Buy a Property That Needs Renovation?
Possibly, but the appropriate finance depends on the scale and nature of the work.
A property requiring relatively minor improvements may still be considered for a commercial mortgage.
However, a property that is vacant, substantially dilapidated or requires significant redevelopment may not fit the criteria of a standard commercial mortgage lender.
In those circumstances, development finance or commercial bridging finance may be worth considering instead.
For example, an investor purchasing an empty commercial building with the intention of carrying out substantial works before letting it may need short-term finance initially, followed by longer-term commercial mortgage finance once the property is suitable for occupation.
The appropriate structure depends on the property, works, costs, planning position and exit strategy.
Can You Get a Commercial Mortgage on an Empty Property?
An empty commercial property can sometimes be financed, but lender appetite can be more limited than for an occupied property with established income.
The reason is straightforward: an empty investment property does not currently produce rental income.
The lender therefore needs to consider how the borrowing will be serviced and what the property is worth as security.
Factors that may be relevant include:
- Why the property is vacant
- Expected rental value
- Location
- Condition
- Previous tenancy
- Demand
- Intended use
- Borrower’s financial strength
A vacant property may therefore require a specialist lender or an alternative funding structure.
Can You Buy a Commercial Property With Tenants Already in Place?
Yes, this is a common investment scenario.
A property may already have one or more tenants when it is purchased.
Existing tenants can provide an established income stream, but lenders will still examine the leases and tenants carefully.
They may consider:
- Length of the remaining lease
- Rental amount
- Tenant financial strength
- Payment history
- Break clauses
- Rent review provisions
- Property condition
A long lease to a financially strong tenant may provide greater income visibility than a short-term tenancy with a near-term break option.
Does the Property Type Affect the Interest Rate?
It can.
Commercial mortgage pricing is based on the overall risk of the transaction, and the property type can be one of the factors considered.
A standard office, industrial unit or warehouse with strong demand may be viewed differently from a highly specialised property.
Other factors can include:
- Loan-to-value
- Borrower profile
- Business performance
- Rental income
- Tenant strength
- Lease length
- Property condition
- Location
- Loan size
This is why there is no single commercial mortgage rate that applies to every property type.
Does Property Location Matter?
Yes.
Location can influence both the value and marketability of a commercial property.
A lender wants to understand what could happen if it ever needed to recover its money through the sale of the property.
They may therefore consider:
- Local demand
- Transport links
- Nearby businesses
- Footfall for retail property
- Access for industrial property
- Employment levels
- Competing properties
- Local rental market
A property in a well-established commercial area may have a wider potential market than a highly specialised building in an isolated location.
Does the Property Have to Be Freehold?
No.
Commercial property can be either freehold or leasehold, but the lending considerations can differ.
With leasehold property, lenders may consider:
- Length of the remaining lease
- Ground rent
- Service charges
- Lease restrictions
- Ability to assign or transfer the lease
- Remaining term relative to the mortgage
A short remaining lease can make finance more difficult because the lender needs confidence that its security will retain sufficient value over the mortgage term.
What If the Property Has More Than One Use?
A property can have multiple uses, and the exact classification can affect the finance available.
For example, a building might contain:
- Retail space on the ground floor
- Offices above
- A residential flat
The lender will need to understand how the building is used, how much income each part generates and how the property is legally classified.
Where residential and commercial elements are combined, specialist semi-commercial lending may be appropriate.
How Do You Choose the Right Commercial Mortgage for the Property?
The property should generally be considered alongside the purpose of the borrowing.
Ask:
- Will my business occupy the property?
- Will I rent the property to another business?
- Is the property mixed-use?
- Is it currently occupied?
- Does it require refurbishment?
- Does it have existing tenants?
- Is the property highly specialised?
- Is the property freehold or leasehold?
- What income will support the mortgage?
- What is the likely exit strategy?
The answers can help determine which type of commercial finance is likely to be appropriate.
Property Type vs Mortgage Type
The property itself is only part of the equation.
| Property situation | Potential finance route |
|---|---|
| Business buying its own office | Owner-occupied commercial mortgage |
| Business buying a warehouse | Owner-occupied commercial mortgage |
| Investor buying a tenanted shop | Commercial investment mortgage |
| Investor buying an industrial unit to let | Commercial investment mortgage |
| Shop with flat above | Semi-commercial mortgage |
| Restaurant with residential accommodation | Semi-commercial/specialist commercial finance |
| Empty property requiring major works | Bridging or development finance may be considered |
| Property undergoing substantial redevelopment | Development finance may be more appropriate |
| Existing commercial mortgage being replaced | Commercial remortgage |
| This is only a general guide. The correct funding structure depends on the specific property, borrower, lender criteria and transaction. |
Why Specialist Advice Can Be Valuable
Commercial property finance is more varied than residential mortgage lending.
Two properties with the same purchase price can have completely different lending profiles.
For example, a £500,000 office occupied by an established professional business could be assessed differently from a £500,000 empty specialist building requiring extensive refurbishment.
Likewise, a £1 million warehouse with a long-term tenant can present a different proposition from a £1 million retail unit with a short lease.
A specialist commercial mortgage broker can help identify which lenders may be suitable for the specific property and borrowing circumstances.
The Commercial Mortgage Guy can help businesses and investors explore commercial mortgage options based on the property, purpose and overall circumstances.
Practical Example: Buying an Office for Your Business
Imagine an accountancy firm currently renting an office.
The business wants to purchase a freehold office for £600,000.
It has £180,000 available and wants to borrow £420,000.
The proposed LTV would be:
£420,000 ÷ £600,000 × 100 = 70%
The lender could then consider:
- The firm’s trading history
- Profitability
- Existing commitments
- The property valuation
- The office location
- Property condition
- The proposed repayment structure
- The firm’s ability to service the borrowing
If the property is suitable and the business demonstrates sufficient affordability, the transaction could potentially proceed.
This example is illustrative only. Actual lending terms depend on the lender and circumstances.
Practical Example: Buying a Warehouse as an Investment
Now consider an investor purchasing a warehouse for £800,000.
The building is already occupied by a business on a commercial lease.
The investor wants to finance part of the purchase using a commercial mortgage.
The lender may examine:
- The purchase price and valuation
- Existing rent
- Lease length
- Tenant strength
- Property condition
- Location
- Loan-to-value
- Rental coverage
Here, the property’s existing rental income and tenant profile could be central to the lender’s assessment.
Practical Example: Buying a Shop With a Flat Above
Consider a property consisting of a retail shop on the ground floor and a flat above.
The buyer plans to rent out both parts.
Because the property contains both commercial and residential elements, it may be treated as semi-commercial rather than as a straightforward commercial investment or standard residential buy-to-let.
The lender may assess:
- Commercial rental income
- Residential rental income
- Property value
- The proportion of residential and commercial use
- Existing leases
- Location
- Borrower’s experience
The precise treatment depends on the property and lender.
Frequently Asked Questions
What properties can you buy with a commercial mortgage?
Commercial mortgages can potentially be used to buy offices, shops, warehouses, industrial units, factories, restaurants, pubs, hotels, healthcare premises, care homes, automotive properties, educational premises, mixed-use buildings and other commercial property, subject to lender criteria.
Can I buy an office with a commercial mortgage?
Yes. Offices are commonly financed through commercial mortgages. The lender will consider factors such as whether the property is owner-occupied or an investment, its value, location, condition, income and the financial strength of the borrower or tenant.
Can I buy a shop with a commercial mortgage?
Yes. Retail units and shops can potentially be purchased with commercial mortgage finance. The lender may assess location, rental income, tenant strength, lease terms and marketability.
Can I get a commercial mortgage on a warehouse?
Yes. Warehouses are commonly considered for commercial mortgage finance. Location, access, condition, tenant quality and lease terms can all influence the assessment.
Can I buy an industrial unit with a commercial mortgage?
Yes. Industrial units can be purchased by businesses for owner occupation or by investors looking to rent them to commercial tenants.
Can I get a mortgage on a mixed-use property?
Potentially. A property combining residential and commercial elements may require a semi-commercial or specialist commercial mortgage rather than a standard commercial mortgage.
Can I get a commercial mortgage on an empty property?
Potentially, but vacant properties can be more difficult to finance, particularly if they are investment properties without rental income or require substantial works. Specialist lending may be required.
Can I get a commercial mortgage on a property that needs renovation?
It depends on the extent of the work. Minor improvements may be acceptable to some lenders, while substantial refurbishment or redevelopment may require bridging or development finance.
Can a limited company buy commercial property with a mortgage?
Yes, potentially. Limited companies can borrow to purchase commercial property, subject to the lender’s criteria and the structure of the transaction.
Can I buy a commercial property and rent it out?
Yes. Investors can potentially use commercial mortgage finance to purchase property that is subsequently rented to commercial tenants. Rental income and tenant strength can be important parts of the lender’s assessment.
Does the type of commercial property affect the mortgage?
Yes. Property type can influence lender appetite, valuation, LTV, affordability assessment and pricing. Specialist or highly specialised properties may require a narrower range of lenders.
Is a commercial mortgage suitable for every commercial property?
No. Some properties may require specialist finance because of their use, condition, planning position, vacancy, lease structure or redevelopment requirements.
Final Thoughts
A commercial mortgage can potentially be used to finance a wide range of UK property, including offices, retail units, warehouses, industrial buildings, factories, restaurants, hotels, healthcare premises, care homes, automotive properties and mixed-use buildings.
However, the fact that a property is technically commercial does not automatically mean that every lender will finance it.
The lender will look at the property alongside the borrower, the intended use, income, valuation, condition, location and repayment strategy.
Owner-occupied properties are generally assessed with significant attention given to the trading business, while investment properties are often assessed around rental income, leases and tenant strength. Mixed-use and specialist properties may require more specific lending expertise.
Choosing the right finance therefore starts with understanding the property and how it will be used.
If you are considering buying a commercial property and want to understand what finance may be available, The Commercial Mortgage Guy can help you explore your options.
Ready to discuss a commercial property purchase? Contact The Commercial Mortgage Guy to discuss the property, your borrowing requirements and the next steps.
Important: This article is for general information only and does not constitute financial, legal or tax advice. Commercial mortgage availability, interest rates, fees, LTVs and lending criteria vary between lenders and individual circumstances.