Owner-Occupied Commercial Mortgage

Owner-Occupied Commercial Mortgage Affordability

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ABC FinanceCommercial mortgagesGuidesOwner-occupied commercial mortgages
Gary Hemming

Author: Gary Hemming CeMAP CeFA CeFA CSP

20+ years experience in commercial mortgages

Owner occupied mortgages explained

What is an owner-occupied commercial mortgage?

Owner-occupied commercial mortgages are a type of commercial mortgage that’s used to purchase or refinance a property that will be used as the premises of the applicant. They can be used whether the application is being made in the company name, or by the owner of the business.

When buying a commercial property that will be let out to a third party, the most suitable product would be a commercial investment mortgage .

How do they work?

They can be arranged on a capital repayment, or interest only basis and are secured by way of first legal charge over a property. In some instances, they can be secured over more than one property.

They are usually paid monthly, much like a residential mortgage – although other payment structures are possible, such as quarterly, or even seasonal payments.

How long does an application take to complete?

We’re usually able to complete owner-occupied commercial mortgages in 6-12 weeks, depending on the complexity of the application.

Key product features

Key Features


Up to 75%

Interest rate

From 2.5%

Repayment types

Capital repayment, interest only or part and part


5-30 years

Interest type

Fixed or variable available

Acceptable security

Any commercial or semi-commercial property considered. Land
accepted on a case by case basis


Loans from £25,000 with no maximum loan size

Available to individuals, partnerships, LLPs, Ltd companies, offshore companies, foreign nationals and pension funds

Minimum applicant age 18 years – no maximum age

Available in England, Scotland, Wales and Northern Ireland

Adverse credit accepted (on a case by case basis)

Products with no early repayment charges available

Costs of an owner-occupied commercial mortgage

What interest rate will I pay?

Rates start at 2.25% per annum, with rates of 2.25-6% being common.

The rate you pay depends several factors, including your industry, the property that you’re borrowing against, the financial strength of your business and your credit history.

The stronger the application in the above areas, the lower the rate that you’ll pay.

On top of the interest, are there other set up costs?

On top of the interest charged, you will usually be charged a number of fees. The main ones are:

Lender arrangement fee – This fee is usually between 0.75-2% of the loan amount. It is charged when the application completes and can usually be added to the loan.

Broker fee – Although we don’t charge fees for loans over £100,000, most brokers do. Where charged, these fees are usually 1-1.5% of the loan amount, although they can vary.

Valuation fee – The valuation fee (also known as a survey fee) is a fee paid to a chartered surveyor of the lender’s choice. The cost of appointing a surveyor varies depending on the type, location and value of the property.

Legal fees – These fees are usually paid towards the end of the process. For commercial mortgages, you’re usually responsible for payment of both your own, and the lenders legal expenses. Again, these fees vary depending on the transaction type, loan size and lender.

How much can I borrow

What loan sizes can you offer?

Our minimum loan is £25,000 with no maximum loan size.

What is your maximum loan to value?

Owner-occupied commercial mortgages are available up to 80% of the property value. This is reduced for some industries, as well as for applicants with a history of adverse credit. Applications are available on interest-only or capital repayment.

Interest-only applications are usually capped at 75% LTV.

Some industries, such as doctors and dentists can borrow more than 80%, subject to meeting their chosen lenders criteria

Where to get an owner-occupied commercial mortgage

The documents required when making an application

When making a new application, you must generally provide the following:

  • Your latest 2 years trading accounts
  • Proof of ID & address
  • Asset & liability statement
  • 6 months of business & personal bank statements

Should I use a broker?

A broker’s job is to secure the best possible deal for you and to give your application the best possible chance of success. That said, they won’t always make life easier, so make sure you’re working with an experienced broker, who knows the market well.

An experienced broker can spot any problems and fix them before they become an issue and will save you money. Although we don’t charge for our service, many do, so you need to take the fees into account when calculating any savings they offer you.

Who can get an owner-occupied commercial mortgage?

Who can apply for an owner-occupied commercial mortgage?

We can lend to the following:

  • Individuals
  • Non-UK based individuals
  • Partnerships
  • Pension funds
  • Limited companies
  • Offshore companies

Can you offer loans to applicants with bad credit?

Previous adverse credit doesn’t usually exclude you from taking out a commercial mortgage, however it may restrict your choice of lenders slightly. These products are known as bad credit commercial mortgages.

We can arrange loans for borrowers who have previous defaults, CCJs, mortgage arrears, IVAs, bankruptcies and repossessions.

Owner occupied commercial mortgage affordability explained

Factors that affect the maximum loan on an owner-occupied application

On top of the loan to value, the lender will look at your ability to repay the debt. When assessing owner-occupied commercial mortgages, your accounts will provide the answers they need to assess the maximum level of debt.

Each lender has their own affordability rules and, as a result, what is considered affordable by one lender may not be by another. Commercial mortgage lenders will usually work from the adjusted net profit, also known as EBITDA (Earnings Before Interest, Tax, Depreciation & Amortisation).

EBITDA is calculated by simply adding the interest, tax, depreciation and amortisation back onto the net profit. Once this has been done, each lender will then expect this figure to be at least a certain percentage above your annual mortgage repayments at either the interest rate you will pay or a ‘stressed interest rate’.

This percentage is usually between 125% – 250% and the stressed interest rate (if used) is usually between 3% – 6% more than the rate charged.

For start-up commercial mortgages, affordability is calculated by using projected income.

Understanding EBITDA and ‘adjusted net profit’

This is a slightly simplified version. A good commercial mortgage broker will be able to run through other one-off expenses with you to create an ‘adjusted net profit’. Where you have invested in the business or paid out one-off costs, this will affect your net profit and thus your maximum loan. By explaining each expense and adding it back on top of your EBITDA, your maximum available loan will increase.

The adjusted net profit method is widely used across the market and accepted by almost every lender. Where the uplift is significant, lenders are still usually comfortable as long as the expenses can be verified.

Using projections

If your business is expecting growth in the next 12 months, projections will be accepted by some lenders. The key to using projected income is to ensure the figures are realistic and can be backed up by a logical case for their attainment.

If you’re expecting growth this year then it is important to be clear why that is and how it can be measured. For instance, if this year is already up on last year, that will help. If there has been an investment into the business with increased demand expected, that is also a positive.

Projections are difficult to predict and it’s important that the lender is given reasons to trust them. Where there are doubts about certain elements of the projected income, questions will often be raised over the validity of the whole set of projections.

Accountants’ certificates

Again, there are lenders that will accept this, however commercial mortgages raised purely against an accountant’s reference will tend to have a higher interest rate. The qualifications of the accountant behind the reference will also be crucial, with most lenders only working from the reference of a chartered or certified accountant.

Frequently Asked Questions

For a full guide, check out our commercial mortgage comparison page, which shows the latest products and their maximum loan to values.

In general, the maximum loan to value for owner occupied applications is 75%, meaning a deposit of 25% is needed.

Lender affordability rules are usually set in stone regardless of the loan to value. Where a larger deposit is put down, the same rules will usually apply.

Of course, a larger deposit reduces the loan size, so a previously unaffordable property could now be deemed affordable, but the calculations remain the same. To work out how affordable a loan is, use our commercial mortgage calculator.

Many people believe that the lender could repossess and get their money back, so should lend regardless of affordability.

Although this may protect the lender from financial loss, it could cause issues for the borrower. Lenders won’t usually lend purely because of a low loan to value, as it isn’t deemed a fair outcome for the borrower.

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