Commercial mortgage deposit

Myles

Author: Myles Robinson - Advisor

Posted: Apr 28, 2022

What Deposit Is Required For A Commercial Mortgage?

In this day and age, there are many lenders and commercial mortgage deals in the UK for you to choose from. Therefore, knowing which one is right for you can be confusing. But did you know a commercial mortgage broker may be able to help you get the deal you deserve?

A specialist commercial mortgage broker can help you negotiate lower interest and guide you on what deposit is required for a commercial mortgage. This can truly save you thousands in the long run!

Check out our guide below to find out how a broker can help you and what you can do to lower a mortgage deposit today!

What is a Commercial Mortgage?

A commercial mortgage is extremely similar to a typical residential mortgage, with the main difference being it can only be used for business and commercial purposes. Most lenders in the United Kingdom will offer some form of commercial mortgage.

One of the greatest advantages of a commercial mortgage is that there is rarely a cap on the amount you can borrow. This is excellent for anyone looking for a long-term solution in terms of business finances.

On top of this, most lenders will also be happy to negotiate payment terms. Whether you prefer to get repayments out of the way or you are looking to spread the cost across ten years, commercial mortgages tend to offer highly flexible repayment terms.

However, as most commercial mortgages and business loans work with high sums of money, you may be expected to pay a somewhat larger deposit. This can be pretty daunting, especially if it is your first time taking out a mortgage – But no need to stress; we’ve got you covered.

How Much Deposit Will I Need for a Commercial Mortgage?

As most lenders in the UK will require a deposit of some form for a commercial mortgage, you may be wondering exactly how much deposit you will need?

There is no set answer on this as a range of factors influence the deposit amount. However, you can expect the deposit to be anywhere between 20 to 25% of the commercial premises’ overall value.

You may want to consider whether paying a more significant deposit upfront to lower the overall monthly repayments is worth it. Of course, the initial funding will be higher, but you could save yourself some money by paying a larger deposit.

The deposit amount will also heavily depend on what type of business mortgage and how much you are asking to borrow. Try to consider how much deposit you are willing to put down before you start comparing mortgage deals – this will help you stay within budget!

Most banks in the UK will feature a commercial deposit calculator on their site or in-store. This will help you get a rough idea of how much deposit you may need to put down when applying for a mortgage.

Keep in mind that this number isn’t always 100% accurate, so ideally, you shouldn’t solely rely on online calculators to determine your deposit amount.

Factors that Determine the Amount of Deposit Needed for a Commercial or Business Mortgage

Almost all business and commercial mortgages in the UK will require a deposit. This is a way for a lender to secure repayments and ensure that, if anything does go wrong, they will still have some form of payment.

A few factors come into play when deciding how much a business owner seeking a commercial mortgage will need to put down as a deposit.

Below you can find a few of the most important factors that can determine the amount of deposit needed for commercial investment mortgages.

The amount borrowed

This can largely depend on your chosen lender, but typically, if your commercial mortgage is fairly large, you will need to pay a large deposit. A large deposit is a security for the lender, and with more money, more protection is generally needed.

The amount borrowed doesn’t always impact the deposit you need to pay on commercial mortgages. A few lenders will only consider your credit score and proven track record to deduce the deposit you will need to put down.

When comparing commercial mortgages, we would always recommend checking what factors impact the deposit amount. This way, you will be able to find an option that is best suited to your finances.

Your credit history

Easily one of the most significant impacting factors on how much deposit you need to pay is your credit rating. One of the first aspects any lender will check when approached regarding a loan or mortgage is personal credit history.

Most business and commercial mortgages will use your credit history as a way to gauge how much you can borrow and the deposit you need to pay. This means it’s crucial to try and keep your credit score in the green as much as possible.

However, a low credit score isn’t the be-all and end-all. A few options and lenders in the United Kingdom will still accept a lower credit score. You may be required to pay a larger deposit and interest rates, but it is an option!

Your business experience and trading history

Experience and a proven track record are something that any lender can appreciate, which is why this may impact the deposit you need to pay. This is especially true with both commercial and business mortgages.

A solid trading history of a couple of years is almost always going to look more appealing to a lender than a startup enterprise. However, this doesn’t mean that startups and first-time business owners are left to their own devices.

Many options are available in the United Kingdom for first-time investors looking for a commercial investment mortgage. They may come with higher interest rates and deposit amounts, so do keep that in mind when comparing available options.

The type of mortgage

The type of mortgage you choose will also impact the deposit you will need to pay. For example, both commercial and business mortgages may expect a deposit rate of between 20% and 40% of the total amount borrowed.

This is extremely different compared to residential or personal mortgages, where you will generally be expected to pay a far smaller deposit.

If you are looking to apply for a commercial or business mortgage, then be sure to keep this deposit amount in mind. There are ways of reducing it, such as those listed above, but the deposit is still generally higher than a personal mortgage.

Does the Type of Mortgage Affect Deposit Requirements?

The type of mortgage you choose will impact the deposit requirements. Business and commercial-based mortgages generally require a far larger initial deposit than most personal or residential options.

This may seem surprising, but when you consider the funds associated with commercial mortgages, it is easy to see why.

Most business-based mortgages will be working with a lot more funds than your average personal mortgage, so lenders will want higher levels of security. Thankfully, as seen above, there are ways to bring this deposit amount down by proving to lenders you won’t miss any payments.

Deposit requirements for the different types of commercial mortgages

Although the exact deposit requirements will differ entirely from lender to lender, the following guide will give you some idea of the amount of deposit you can expect to pay based on mortgage type:

  • Commercial Mortgages: In terms of business or commercial mortgages, your typical UK-based lender will expect a deposit of 25% of the total property value. This is a 75% loan-to-value amount. It isn’t uncommon for some deposits to go up to 40% of the total property value, so be sure to compare deals where possible.
  • Residential Mortgages: Most residential or personal mortgages in the UK will allow you to pay 5% of the total property value as a deposit. This is 95% loan-to-value. However, some lenders may expect an 85% loan to value, meaning you may need to pay 15% of the total property value as a deposit.

In general, you can negotiate the deposit amount. It can seem overwhelming or even intimidating to negotiate a new deposit amount, but luckily you don’t need to do it alone. Mortgage brokers are there to offer you advice and guide you through the application process.

To find out more about brokers and gain access to mortgage advice, get in touch with us today on 0808 301 9509. You can also use the enquiry form found on our site to apply for advice in less than 30 seconds!

How to Get a Low Deposit Commercial Mortgage?

Getting a low deposit commercial mortgage can be challenging, especially if your chosen loan value is pretty high. However, by familiarising yourself with the factors that influence the deposit amount, it is possible to pay a lower deposit than usual.

Perhaps the most important factors that influence the deposit amount is your credit score and whether or not you have a proven positive track record. If you have a solid track record and a decent credit score, lenders will see you in a far more favourable light.

The main idea behind a deposit is for lenders to secure funding if the business owner defaults on any payments. As long as your lender is confident that you will repay them and that your business is trustworthy, then the chances of you paying a lower deposit are far higher.

Where Can I Get Funds for a Commercial Mortgage Deposit?

The vast majority of commercial mortgages will require a fairly high deposit. This may mean you will need to save up a fairly hefty amount of cash before you can apply for a commercial or business mortgage.

Whilst there is no single solution to get funds for a commercial mortgage, there are ways you can prepare yourself to pay the deposit.

When trying to save up to apply for a business mortgage, we would highly recommend that you plan out your budget. Plans can help you keep on top of your finances and will ensure that you aren’t risking putting your business in the red just to afford a mortgage deposit.

You should also consider whether or not you truly need a commercial mortgage, especially if you are worried about the hefty deposits. Commercial mortgages are generally used to purchase new business premises, so if you aren’t looking to expand, then a mortgage may not be right for you.

If you are at a loss and you’re not sure which option is best for you, then be sure to seek mortgage advice. A specialist commercial mortgage broker will provide you with the support you need to secure a mortgage without risking your businesses current finances.

The Benefits of Paying a Higher Commercial Mortgage Deposit?

You may instantly think that paying a higher deposit upfront can never be a good thing. However, by opting into paying a higher deposit, you may be saving yourself a lot of stress and potentially money further down the road.

Commercial mortgages can often come with extremely high interest rates, meaning you will pay a lot more than the initial loan you borrowed. However, by choosing to pay a higher deposit, you may be able to negotiate lower interest rates and save yourself a decent amount of cash.

As the deposit paid is subtracted from your overall repayment amount, a larger upfront payment will lead to smaller monthly repayments. This can be an excellent option if you are worried about high monthly costs, but you have enough money to cover a larger deposit.

Before you do settle on paying a higher deposit, we would highly recommend you speak to a specialist commercial mortgage broker. A specialist broker can help you negotiate a better deal, which in turn can lead you to pay a lot less interest than you might initially be expected to pay.

How Much Can I Expect to Borrow?

The overall amount of money you can borrow for a commercial mortgage will depend on a range of factors. Perhaps the most important factor is the overall value of the business property you are looking to purchase.

When applying for a mortgage, you will hear the term Loan-to-Value or LTV for short. This is used to determine the maximum amount of money you can borrow when applying for a commercial or business mortgage.

In most commercial mortgage instances, the maximum amount you can borrow is up to 75% of the property’s overall value. The Loan-to-Value is the exact percentage of the property cost you can borrow through a mortgage.

There are a few other factors that come into play, such as your credit score, but the maximum cap is almost always dependent on the property value. Keep this in mind when applying for a mortgage, as you may not need a mortgage if you are close to being able to afford the property upfront.

Is It Possible to Get a Commercial Mortgage with No Deposit?

As with loans, the exact requirements to qualify for a commercial mortgage is completely dependent on lender preference. This means that there are potential mortgage options within the UK that do not require a deposit.

One such option that lenders offer is what is known as a 100% Loan-to-Value ratio mortgage. However, such loans will usually have stricter qualification requirements and may even require you to put a commercial property on the loan as collateral.

Depending on the value of the property you use in a secure loan or mortgage, you may end up paying zero deposit. Typically, the value of your collateral must be equal to or more than the amount borrowed to negate a deposit.

We would highly recommend you heavily consider sticking with a traditional deposit system than using commercial property as collateral. If you skip payments, any property placed on the line could be repossessed by the lender!

Before you sign any mortgage deal, it’s important that you seek mortgage advice. This way, you will know which option is the best for your business. You can find out more about this in the next section.

How Can a Commercial Mortgage Broker Help You?

One of the best ways you can lower interest and the deposit you need to pay during a commercial mortgage application is by chatting with a commercial mortgage broker.

Here at Loan Corp, our goal is to help businesses throughout the UK access a range of commercial mortgages. We have links with over 200 lenders, specialising in both commercial and personal mortgage loans.

Our highly trained and experienced commercial mortgage brokers are dedicated to helping business owners secure a mortgage. By choosing to discuss options with a commercial mortgage broker, you may be able to secure lower commercial mortgage rates!

Most commercial mortgages in the UK can be extremely costly, especially if you aren’t sure which option is the right one for your business. So don’t pay more than you need to; get in touch today!

What can you Expect From the Mortgage Application Process?

Applying for a mortgage in the UK is thankfully reasonably straightforward. Most lenders will offer customer support to help guide you through the application process, so you don’t need to worry about knowing any specialist information.

Knowing the amount a lender is willing to lend can be hard to determine, however. A large majority of mortgages are designed to be specifically tailored to suit an individual’s needs, so you won’t know exactly what to expect until you have been assessed.

When applying for a mortgage, you may want to keep any important documents at hand. This will help speed up the process as some lenders will ask for copies of any relevant business documentation during the application process!

Final Thoughts

Navigating the world of mortgages and business loans can seem daunting, especially if you are a new business owner. With so many mortgage types out there and high deposit requirements, it’s easy to get lost in the number.

Whether you are new to mortgages or not, our team of highly skilled mortgage brokers are there to give you the advice your business deserves. So don’t settle for startling deposits and high interest; give us a call, and we can help you get indicative terms in less than two hours!

FAQs

Why are commercial mortgage deposits higher than residential mortgage deposits?

Commercial mortgages are generally higher than traditional residential or personal mortgages in terms of funds borrowed. As commercial mortgages deal with higher funds, they will normally require a larger deposit than residential mortgages.

There are ways to lower a deposit, so be sure to check out our guide to reducing your deposit amount above!

Will I get a lower commercial mortgage interest rate if I put down a higher deposit?

Mortgage interest rates will differ depending on a range of factors. A higher deposit can lead to lower interest per payment. One of the main reasons for this is that a higher deposit percentage means you will technically be borrowing less.

There is a multitude of factors that come into play when deciding your interest rate. Most lenders will make it clear upfront what is having an impact on your interest rate. Generally, deposits, the amount borrowed, and your credit history has the most significant impact.

What type of security can I offer to get a commercial mortgage with a smaller deposit?

If you are looking for ways to lower your deposit amount, you may be tempted to use commercial property as collateral. This can help you gain access to commercial mortgages you may typically struggle to get, but they do come with risks.

Failure to pay your mortgage can lead to the lender repossessing any property you place on the line. Always heavily consider whether or not this is worth a smaller deposit.

Does a commercial mortgage deposit need to be paid in cash?

No, not all commercial or business mortgage deposits will need to be paid in cash. The payment method will depend entirely on the lender, but in today’s digital era, most commercial mortgage deposits in the United Kingdom are paid via bank transfers.

When you apply for a commercial mortgage, your lender will let you know how you will need to pay your deposit. If you are at all unsure, then be sure to get in touch with their customer support helpline!

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