Commercial Mortgage Deposits

Commercial mortgages are bespoke products. Each application is assessed on its own merits with rates and terms dependent on the perceived level of risk. One of the major factors in determining the risk for lenders is the amount of deposit the borrower can put down.

This article will look at how your deposit can affect your application, ways you can maximise the amount you can put down, and how a broker can help your deposit funds go further.

How much deposit do you need for a commercial mortgage?

Typically you would need to put down a deposit of between 20% to 40% of the purchase price for a commercial mortgage.

However, when applying for any type of commercial mortgage you should look at it more as a negotiation than a standard application as there are very few hard and fast rules and there is usually an opportunity to negotiate based on the strength of your application.

The amount of deposit you have to put down will affect the range of lenders that you can approach, so it’s important to find the mortgage provider who is best placed to offer favourable rates to a customer with your deposit size and source.

Types of mortgage and deposit amounts

There are two types of commercial mortgage…

• Owner-occupier mortgage: If you plan to operate your own business from the property you are buying.
• Commercial investment mortgage: If you plan to let out the premises to someone else.

Commercial investment mortgages are considered higher risk by lenders as your ability to make repayments is based not only on the profitability of your own business but that of your tenants. There is also the risk of void periods where you are not receiving any rental income.

The maximum loan to value (LTV) for an owner-occupied mortgage is usually 80% which would require a deposit of 20% or above. Commercial investment mortgage lenders typically expect around 25% deposit as a minimum.

Property types

The type of commercial property you’re applying for will also affect the amount of deposit needed. A borrower who meets all the lenders’ other criteria and has a strong business plan will typically require a deposit of…

As commercial mortgages are bespoke deals that are open to negotiation, these figures are just a guide as to how much you might need as a deposit.

Specific commercial lenders’ deposit requirements

Some commercial lenders impose minimum deposit requirements. For example…

• Shawbrook Bank have a minimum of £50,000 deposit regardless of the LTV
• Kent Reliance insists on a minimum of £50,000 deposit and a minimum property value of £75,000 (this is due to the additional lending costs associated with commercial mortgages)
• HTB require a minimum deposit of £100,000 and a minimum property value of £133,333

These figures are based on all other criteria matching the lenders’ attitude to risk.

While no lender imposes concrete rules on deposit amounts, these are examples of lenders with a lower appetite for risk and who operate in a more ‘traditional’ way when it comes to assessing mortgage applications.

Other lenders who are more open to negotiations are often the only choice for borrowers with little or no deposit but can also be a good choice to those who have a large deposit and good negotiating skills.

If you don’t feel confident to argue your case alone, a broker can speak on your behalf so you get the benefit of their insider knowledge and existing relationships with lenders to get the best deal according to the size of your deposit.

How the size of your deposit will affect your mortgage

As with all mortgage products, the larger your deposit, the greater your options.

With a deposit above 50% you will find most commercial lenders are willing to lend you money and your biggest challenge is likely to be securing the best rate from the many available on the market.

To a large degree, the size of deposit the provider requires from you will depend on the level of risk based on:

• Affordability: Typically, 3+ years of secure certified accounts will strengthen your application
• Type of business: High risk businesses such as pubs or clubs will require larger deposits
• Credit history: Bad credit makes you higher risk so provider will often ask for a higher deposit or other form of security against the loan
• Property type: Non-standard constructions or buildings requiring significant renovation will most likely require a higher deposit
• Your industry and investment experience: A strong investment record in the industry (or stakeholders with a proven record of success) will put you in a position to negotiate a higher LTV and lower rate

Any problems with the above criteria can be offset by putting down a large deposit as the lender will have greater confidence in the deal. As the amount of deposit you are able to put down reduces, your pool of lenders and negotiating power decrease.

How a broker can help you make your deposit funds go further

Negotiating with specialist lenders, especially if you don’t have prior knowledge of the industry, can be intimidating, but the good news is that there are specialist commercial mortgage brokers who can help you make sure your deposit funds go furthest.

If you have a large deposit, a broker will make sure you benefit from it by getting the best rates on the market.

With a small deposit, a broker will help you discuss ways of maximising your cash and assets to ensure you have the strongest negotiating position possible.

A broker will offer you bespoke advice about the following…

• The value of your assets
• Other borrowing options like a business loan to increase your deposit
• How to tailor your application to match the risk strategy of the best lender

A broker’s knowledge of the market enables them to match you with the best lender based on the amount of your deposit and how it is put together.

Can you get a 100% commercial mortgage?

It is possible to obtain a business mortgage of up to 100% but this will require you to secure the loan against other assets in which you hold sufficient equity. This could be another commercial property, your home or in some cases, assets and equipment.

Each lender will have their own preferences when it comes to which assets they will consider in lieu of a deposit. In some high risk circumstances, they may require assets that total 100% of the value of the loan.

In some cases, after assessing your application a lender will offer to loan you an amount lower than what you initially applied for due to risks they have identified.

In these circumstances, you may want to look at alternative ways of increasing your deposit amount such as:

• Using working capital
• Dipping into money set aside for development
• External investment
• A bridging loan (if you are also selling property)
• A commercial loan (speak to a broker before agreeing to this course of action as they may be able to help you borrow the initial amount requested via a specialist lender)
• A combination of the above

Get matched with an expert commercial mortgage broker today

With our broker matching service you can access the best commercial mortgage deals according to the size of deposit you are able to get together through cash or other means.

Many specialist commercial mortgage lenders only take applications via brokers so you will have access to more products than would when applying as an individual – including some exclusive rates.

Call today on 0808 189 0463 or enquire online to arrange a no-obligation chat between you and your ideal business mortgage advisor today.