Last reviewed on 29th August 2023 by Martin Alexander (Mortgage Advisor)
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?
- How does a commercial remortgage work?
- What criteria will I need to meet?
- What documents will I need to provide my commercial lender?
- Can I borrow more against my commercial property?
- Should I remortgage a commercial property?
- Can I switch from an owner-occupier mortgage to a commercial buy to let?
- How to calculate the best remortgage rates
What is a commercial remortgage?
A commercial remortgage can be used to refinance a commercial property. As the majority of commercial ownership is for investment, a remortgage can help to boost the profitability of your property.
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 your business.
How does a commercial remortgage work?
In terms of how the process works, your new lender will replace your existing lender. This part of the remortgage is very much similar to a regular remortgage. That being said, 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 will require at least 25% equity to remain in your property at the time of your remortgage. Trying to remortgage at an 80% loan to value for a commercial property will be very difficult.
What criteria will I need to meet?
Every mortgage lender will have criteria that you’ll need to meet in order to be eligible. Failing to meet certain criteria could result in your application being declined.
- Net profit – Lenders will require evidence that your commercial investment is generating a profit. This is so that your lender can clearly see you’re able to repay the mortgage based on the return from your property.
- Trading history – The longer you’ve been trading for the better. This is because it 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 – You’ll need at least 25% equity in your commercial property before you can remortgage. Having more equity in the property 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’ll be able to approach. This is because some lenders prefer certain industries and will stay away from others as part of their criteria.
- Credit history – Although bad credit can affect your chances of being approved, the majority of lenders largely place their attention 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 is to ensure that the lease provides you with some cover and doesn’t leave you or your lender in a vulnerable position.
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 amount of equity you have in your property. Furthermore, the value of your commercial premises will also be a factor in the amount of equity you can release.
How much can I borrow?
Many lenders have a minimum remortgage amount of £25,000 with a maximum loan amount of £25m. That being said, amounts will vary from lender to lender.
If you’re planning on a large commercial development that exceeds £10m, development finance may be better suited.
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 you may have to pay an early repayment charge (ERC). That being said, you’ll be able to 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?
If you run a business from your commercial property but now want to rent it out, you’ll have to switch your mortgage type. 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.
Informing your lender that you want to switch mortgage types is important. This is because you’ll need consent from your lender if there are any changes to your original plans.
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 a lengthy process. Alternatively, you can consult the experience of a commercial advisor, who can compare each deal for you. You can make an enquiry to speak to a specialist. We’ll then assess your options before searching for possible deals.
About the author
Martin is a senior mortgage advisor and has held a CeMAP qualification for over 15 years while also completing an MBA in Global Banking & Finance.