Published 15th May 2021 · Updated 29th August 2023 by Martin Alexander
Commercial remortgages are different from residential remortgages, but the principles are very similar. Whether you want to release equity or switch to a better rate, a commercial remortgage can allow you to do this.
Key features include:
- 75% loan-to-value remortgages
- Amounts from £25,000 to £25m
- Lenders for limited companies, SPVs, and individual borrowers
- Mainstream and specialist commercial lenders
- Commercial buy-to-let and investment purposes
If you’re unsure of what to do next, our experts can help you.
What is a commercial remortgage?
A commercial remortgage is used to refinance a commercial property. Most commercial ownership is for investment, so a remortgage can help boost your property’s profitability.
The savings you make from a remortgage can then be used to buy an additional property or to improve your existing investments. As a result, refinancing can enable you to leverage your commercial assets to expand your portfolio or business.
How does a commercial remortgage work?
When you remortgage, your new lender will replace your existing lender. This part of the remortgage is very similar to a regular remortgage. However, commercial lenders often work on a case-by-case basis, as each commercial investment is unique.
You’ll also require equity in your commercial property. For instance, most lenders require at least 25% equity to remain in your property at the time of your remortgage. It will be very difficult to remortgage at an 80% loan-to-value for a commercial property.
What criteria will I need to meet?
Each mortgage lender has eligibility criteria that you must meet. Failure to meet certain criteria could result in your application being declined.
- Net profit – Lenders will require evidence that your commercial investment generates a profit. This is to ensure you can repay the mortgage based on the return from your property.
- Trading history – The longer you’ve been trading, the better. This gives lenders a greater insight into how the property generates income. Furthermore, lenders may offer favourable rates if you can show a healthy trading history.
- Equity – Before you can remortgage, you’ll need at least 25% equity in your commercial property. Having more equity can qualify you for better rates, and you may be able to borrow more during your remortgage.
- Type of business – The industry you trade in can affect the amount of lenders you can approach. This is because some lenders prefer certain industries and avoid others as part of their criteria.
- Credit history – Although bad credit can affect your mortgage chances, most lenders primarily focus on the profit you’re generating. In addition, having made mortgage repayments on time can also give your application a boost.
What documents will I need to provide my commercial lender?
Commercial lenders will require information regarding your premises, which can include:
- The rateable value of the property
- Lease arrangements (if rented out)
- Insurances on the building
- Energy performance certificate rating (EPC rating)
- Registered use (mixed-use, semi-commercial)
- Commercial class
Depending on the nature of your premises, certain lenders may require further information for a remortgage. If your property is leased to a business, your lender will require a copy of the lease. This ensures the lease provides some cover and doesn’t leave you or your lender vulnerable.
Can I borrow more against my commercial property?
Yes, it’s possible to release equity by borrowing more against your commercial property.
The amount you’ll be able to borrow will depend on the equity in your property. Furthermore, the value of your commercial premises will also affect the amount of equity you can release.
How much can I borrow?
Many lenders have a minimum remortgage amount of £25,000 and a maximum loan amount of £25m. However, amounts will vary from lender to lender.
If you’re planning a large commercial development exceeding £10m, development finance may be better suited.
Learn more about development finance here.
Should I remortgage a commercial property?
A remortgage isn’t always the best option. For instance, you may already have a great mortgage rate or have to pay an early repayment charge (ERC). That being said, you can calculate whether a remortgage makes financial sense by assessing what other lenders are prepared to offer you. Our advisors can also help you with this.
Reasons to refinance a commercial property
Benefits of a commercial remortgage include:
- Switch to a lower interest rate
- Reduce the term of your mortgage
- Release equity for further investment
- Improve cash flow
- Extend your premises
- Leverage your commercial assets
- Review your investment goals
Can I switch from an owner-occupier mortgage to a commercial buy-to-let?
You’ll have to switch your mortgage type if you run a business from your commercial property but want to rent it out. For instance, your current mortgage will be an owner-occupied commercial mortgage. You can use a remortgage to switch to a commercial buy to let.
It is important to inform your lender that you want to switch mortgage types. If your original plans change, you’ll need consent from your lender.
How to calculate the best remortgage rates
If you’re ready to remortgage a commercial property, you’ll want to establish the most competitive deals you’re eligible for. This is so you can assess whether a remortgage is indeed viable.
You can look at online mortgage rates, but comparing deals from each lender can be challenging. Alternatively, you can consult the experience of a commercial advisor, who can compare each deal for you.
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About the author
Martin Alexander
Martin is a senior mortgage advisor who has held a CeMAP qualification for over 15 years while completing an MBA in Global Banking and Finance.