What is a commercial mortgage? A legal guide

What is a commercial mortgage and how does it differ from a standard residential mortgage? In simple terms, a commercial mortgage is a loan secured against non-residential property, such as offices, shops, warehouses, or land for development. For business owners and investors across England and Wales, it is a crucial tool for purchasing, refinancing, or investing in property, but it carries unique legal and financial considerations that require careful guidance. Our Commercial Property Solicitors are here to help.

What is a commercial mortgage?

Unlike residential mortgages, which are designed for individuals buying homes, a commercial property mortgage is tailored for businesses, landlords, and investors acquiring property for commercial purposes. Lenders assess applications differently, focusing on the business’s financial strength, projected rental yields, and the property’s value and condition.

Common uses for a business mortgage include:

• Purchasing premises for your own business operations (e.g. offices, retail units, industrial sites).
• Buying investment properties such as shops or mixed-use buildings.
• Refinancing existing debt to release equity.
• Funding development projects or portfolio growth.

Types of commercial mortgage

When looking at commercial mortgages, it is important to understand the different types available:

• Owner-occupier mortgage: For businesses buying property to trade from, such as a restaurant buying its freehold premises.
• Commercial investment mortgage: For landlords buying property to let to tenants, with lending criteria based on rental income.
• Short-term commercial loans: Often referred to as bridging finance, used for development, to secure quick purchases or assist with short-term cash flow issues.

Each type of commercial loan for property has specific lending criteria, interest rates, and repayment terms, so choosing the right product is essential.

We would therefore strongly recommend instructing a broker or similar qualified financial professional at the outset in order to assist you in navigating the market of mortgage products which are available.

Legal considerations when applying for a commercial mortgage

Our team would be pleased to assist with the legal aspects of your lending requirements. Key legal issues include:

• Title investigation: Reviewing the title to the target property to ensure that the lender’s charge will be able to be secured.
• Leases and third-party occupiers: Where investment properties are let, reviewing such agreements and reporting to the lender to ensure they are satisfied with the position.
• Covenants and restrictions: Checking for restrictions that may prevent intended business use.
• Security documentation: Lenders will register a legal charge against the property with the Land Registry. We will review these documents and report to you so you are clear as to the terms.

Step-by-step guide to the commercial mortgage process

For clients wondering in practical terms, what is a commercial mortgage, here is a typical process in England and Wales:

1. Initial assessment: Speak to a broker or lender to check eligibility, financial records, and loan-to-value ratio.
2. Offer in principle: Receive an indicative loan offer subject to valuation and legal due diligence.
3. Valuation: The lender instructs a valuation to assess the property’s worth and suitability.
4. Legal due diligence: Your solicitor investigates title, searches, leases, and compliance matters.
5. Security documents: The lender’s solicitor prepares a legal charge and related documents for signature. This often involves an in person meeting and verification of original identity documents.
6. Completion: Funds are released, the lender’s charge is registered, and ownership is transferred if purchasing.

Case scenario: financing a retail premises

A client is seeking to buy a high street shop to expand their growing retail business. As many shops are located in the same building as residential flats, we could advise both client and lender about the terms of any commercial lease arrangements covering key issues such as who is responsible for repairing the site overall and how this could impact the business. We can take the necessary steps to ensure the lender can secure their charge on the title to the shop and overall do the necessary diligence, to ensure that the matter completes smoothly and helps to further establish the business long term.

Expert insights from solicitors

From our experience advising on commercial loans for property transactions, here are some practical insights:

• Lenders often require personal guarantees from directors of smaller companies.
• Commercial mortgages usually have shorter terms (5–25 years) compared to residential loans.
• Early repayment charges can apply – always review terms carefully.

Our Commercial Property Solicitors have considerable experience in advising on commercial property transactions involving commercial mortgages. Our team has a comprehensive understanding of the issues faced by our clients in today’s challenging financial environment and offers innovative and practical solutions to borrowers for transactions involving the refinance of existing property, or acquisition of new property or land with the assistance of a commercial mortgage.

Contact us for more information.

Benefits and challenges of a commercial mortgage

FAQs

What is a commercial mortgage?

A commercial mortgage is a loan secured against non-residential property such as offices, shops, or warehouses. It is used by businesses or investors to purchase, refinance, or invest in property in England and Wales.

How does a commercial mortgage differ from a residential mortgage?

Commercial mortgage products are designed specifically for non-residential properties and related transactions. They are assessed on business financials and property income potential, with shorter terms and higher rates. Residential mortgages focus on personal income and credit history.

Can I get a business mortgage as a sole trader?

Sole traders, partnerships, and companies can all apply, but lenders will usually require evidence of trading accounts and may seek further security for example a charge against a second property in addition to the target property.

What legal checks are carried out for a commercial loan for property?

The transaction will typically include reviewing the title to the property in question, any leases in place, covenants, carrying out searches, and putting in place any indemnity (insurance) policies that the lender may require.

This article was produced on the 7th October 2025 for information purposes only and should not be construed or relied upon as specific legal advice.