Looking to diversify your property portfolio? Below, we highlight the similarities and differences between commercial and buy to let investment, what lenders look for on your application, and the types of rates available to help you get started.
For clients starting out with their property investment journeys, sometimes mortgage jargon can make it difficult to know what type of mortgage is right for you.
Or, as an experienced landlord, you may be looking to diversify your property portfolio into more complex and higher-yielding property types such as commercial investment.
Either way, it’s essential to understand how commercial mortgage applications differ from buy to let to give you the best starting point for your next property investment venture.
Do I need a commercial mortgage as a Limited Company?
No, not necessarily. If you’re investing in a buy to let property via a Limited Company, you can apply for a buy to let mortgage. You will only require a commercial mortgage if the property has a commercial element to it. Similarly, if you are a Trading Company looking to take out a mortgage on a purely residential property, then you can apply for a buy to let mortgage.
Which properties are best suited for buy to let vs commercial?
Any property that has a business operating and trading from its premises requires a commercial mortgage, regardless of whether there were also residential elements in the property, such as a flat above a shop. Other property types include office blocks, nurseries, and restaurants.
Buy to let mortgages are for purely residential properties that are let out to tenants. HMOs (up to 20 bedrooms), student lets, and blocks of flats (up to 20 units) all fall under buy to let property. Larger HMOs and multi-unit freehold blocks would require a commercial mortgage.
Are holiday let mortgages commercial or buy to let?
Many landlords ask us whether a holiday let property is considered a buy to let or commercial investment. Lenders view holiday lets in their own separate category, and they typically don’t require a commercial mortgage unless you’re investing in a bed and breakfast or guest house that you plan to run yourself. Depending on the property and the anticipated use, the mortgage application can fall under either commercial or buy to let.
Commercial and buy to let lenders also assess affordability differently, and it may be that you could borrow more for your holiday let with a commercial lender. As such, it’s best to speak to our experts to explore all your options.
What does mixed-use/semi-commercial property come under?
A ‘mixed-use’ or ‘semi-commercial’ property consists of both residential and commercial elements and can be a great property investment type. As an example, any of the following would be classed as a semi-commercial property:
- Shops/restaurants with flats above
- Pubs with self-contained living accommodation
- Offices with flats above
Due to the commercial element of the property, you will need to secure a commercial mortgage.
There are a few buy to let lenders that would consider lending on these properties if the buy to let income covers the mortgage repayments. However, they would also take into consideration the type of business that is operating on the property. As such, discussing these properties with our commercial mortgage consultants is always best, as they can steer you in the right direction.
I’m a portfolio landlord – do I have to go to a commercial lender?
No, not necessarily. If your portfolio consists of solely residential properties, you can typically find a buy to let lender who will be happy to offer to you with the help of one of our buy to let mortgage brokers. A number of buy to let lenders offer a portfolio loan, which may help consolidate your debts and reduce your mortgage costs.
If your portfolio consists of both buy to let and commercial properties, you may still be able to go to a buy to let lender. However, if you're looking for a mortgage on one of your commercial properties, a commercial lender will, of course, be required.
For a FREE property portfolio review with one of our expert mortgage makers, email us at enquiry@mfbrokers.co.uk.
Which mortgage lenders can I access?
The commercial mortgage market is smaller compared to buy to let. There are fewer specialist lenders, but most high-street banks offer commercial mortgages. Our commercial experts can access several specialist lenders that borrowers can’t go to directly, so we may be able to secure you a more competitive deal than you could access elsewhere.
There is a much wider range of buy to let lenders in the market, with both high-street banks and specialist lenders offering different products. Like with commercial, some of these lenders are only accessible through a broker, so it’s worth bearing this in mind for your mortgage application.
What types of rates are available?
Rates will vary depending on whether you’re applying for a commercial or buy to let mortgage, the property type, how much you want to borrow, etc. To explore the most cost-effective options available to you, speak to one of our experts.
What deposit will I need?
For commercial property investments, the deposit amount will vary based on the lender and the property type. Generally, you can access a commercial mortgage rate at up to 75% loan-to-value, but for some professional sectors, lender criteria may vary. Please speak to a member of our commercial team to explore your options.
Commercial lenders will also want to see that the Trading Company (if applicable) has a good financial track record and, for commercial investments, that the tenant is reliable with a good lease in place and a sufficient rental yield to cover the mortgage repayments.
Typically, you will need a 25% deposit for a buy to let mortgage. A handful of lenders will offer 80% loan-to-value product ranges, but these will be more expensive.
How long do commercial and buy to let mortgage applications take?
Assuming the process runs smoothly, from application to completion, you can expect a commercial mortgage application to complete in around 12 weeks.
The process is typically quicker for buy to let mortgages, at around eight weeks. This may be shorter if you're looking to remortgage or complete a product transfer, as these applications require less legal work.
What documents will I need for my application?
The documents you need to supply will depend on the commercial application, for example, whether it’s an owner-occupier or commercial investment property. However, as a general rule, you will need to submit:
- Full mortgage application form
- The last two-three years of company accounts
- Business plan (if applicable)
- Proof of income:
- Two years SA302’s (Self-assessment tax return) if self-employed
- Two years Tax overviews if self-employed
- Last three months’ Payslips and or P60 if employed
- Proof of ID (copy of Passport and or Driving licence)
- Last 3 months’ property company and personal bank statements
Again, with your buy to let mortgage application, the documents required will vary on a case-by-case basis, but typically we will ask to see:
- Full mortgage application form
- Proof of ID (copy of Passport and or Driving licence)
- Proof of address (Utility bill or Council Tax bill)
- Proof of income:
- Three months’ payslips, or the latest two years’ Tax Calculations and corresponding Tax Year overviews if self-employed
- Latest three months’ personal bank statements
- Evidence of deposit
What fees can I expect to pay?
With both buy to let and commercial mortgages, you may need to pay the following fees:
- MFB consultancy fee
- Lender assessment fee
- Lender valuation fee
- MFB Succession fee
- Legal fees
- Adhoc fees such as transfer fees and title fees (to be detailed by solicitor)
One of the main benefits of working with us is that we consider these fees when sourcing the best option for you. This means we find you the most cost-effective mortgage rate for your needs, not just the lowest price. For more information on our fees, click here.
What’s next?
Looking to fund a commercial property investment? For more information on commercial mortgages, visit our commercial homepage here.
For more on buy to let, our buy to let homepage has all the information you need to get started with your next mortgage application.
To discuss your property finance plans with one of our mortgage makers, call 0345 345 6788 or submit an enquiry here.
