Commercial Mortgages in Leicester
Commercial Mortgages in Leicester
Owner-occupier or investment?
Lenders treat these as two separate products.
Owner-occupier — you are buying premises for your own business to trade from. The lender assesses your business's ability to service the debt, using trading accounts, management figures and often a forward plan. Because they can see the income directly, terms are generally better and deposits lower.
Commercial investment — you are buying to let to a tenant. The assessment centres on the lease: who the tenant is, their financial strength, how long the lease runs, whether there are break clauses, and what happens if they leave. A strong tenant on a long lease is a very different proposition from a vacant unit.
Tell us which you are doing at the outset, because it determines the lender.
What Leicester's commercial stock looks like
The county's commercial property divides fairly clearly, and each type lends differently.
Industrial and warehouse units
Well supplied across Leicestershire given the county's position on the M1 and M69 and the concentration of logistics activity around Lutterworth, Magna Park and the Enderby and Braunstone corridor. Generally straightforward to finance where the unit is standard specification and readily re-lettable.
Offices
Leicester city centre and the business parks on the ring road and around Meridian. Lenders look closely at re-lettability — a well-configured office in a recognised location is easier than a converted building in a secondary one.
Retail
More cautiously assessed than it once was. Lenders consider location, footfall and whether the unit could be re-let or converted if the current use fails.
Mixed use
— commercial ground floor with flats above. Common along Leicester's main arterial roads. These can be excellent investments and are a specialist lend, because a residential element sitting above commercial premises restricts which lenders will consider it.
Specialist premises
— care homes, nurseries, pubs, garages, petrol stations. Valued on the business as much as the building, and financed by specialist lenders.
Deposit, term and rate
Expect 25% to 40% deposit. Owner-occupiers with strong accounts sit at the lower end; investors and specialist buildings at the higher.
Terms typically run five to twenty-five years, shorter than residential. Many commercial mortgages are variable, priced at a margin over base rate, with fixed periods available. The margin depends on the strength of the covenant — the business or the tenant — as much as on the property.
Arrangement fees are normally a percentage of the loan rather than a flat sum, and a valuation on a commercial building costs considerably more than a residential one and is paid up front.
Structure: company, personally, or pension
Most owner-occupier purchases go through a limited company. Some businesses buy their premises through a pension scheme — a SIPP or SSAS — which can be efficient, since the business then pays rent to its own pension fund. That route has its own rules and restrictions.
This is an accountancy and pension question before it is a mortgage question. Take that advice first; we will arrange lending that fits the structure you choose. We do not give tax or pension advice.
Note that directors will be asked for personal guarantees in most cases, regardless of structure.
VAT — the cost people forget
Commercial property can carry VAT on the purchase price, and it catches buyers out because residential property does not.
Some commercial buildings have been subject to an option to tax by the current owner, which means VAT is charged on the sale. On a substantial purchase that is a significant additional sum, and — critically — lenders will not normally fund the VAT element. You have to find it yourself, even if you can subsequently reclaim it.
If your business is VAT registered and will use the property for taxable purposes, the VAT is usually recoverable, but there is a gap between paying it and getting it back. That gap has to be funded from working capital.
Establish the VAT position early, in writing, from the seller's solicitor. It changes how much cash you need on completion day, and it is a genuinely unpleasant surprise if it emerges late.
What you will need
Commercial underwriting is manual. A well-prepared application with clear figures and a coherent explanation genuinely moves faster than a thin one.
- Two to three years of business accounts, plus recent management figures
- A business plan, where the purchase changes how you trade
- Details of the property, including any existing leases and tenants
- Personal financial information for each director or guarantor
- Evidence of the deposit and its source
Timescales
Allow six to twelve weeks. Commercial valuations take longer, underwriting is done by people rather than systems, and the legal work is more involved — particularly where leases, licences or environmental matters are in play.
If you are buying at auction, the timetable is fixed and short. Speak to us before you bid, not after.
Speak to a Leicester commercial finance adviser
Whether you are buying premises for your own business or adding to an investment portfolio, we will tell you what the lending will support before you commit.
Call 0116 277 7536 or book a free consultation.
Cedar House, 3 Broad Street, Enderby, Leicester, LE19 4AA.
Common questions
How much deposit do I need for a commercial mortgage in Leicester?
Typically 25% to 40% of the property value. Owner-occupiers buying premises for their own business often secure better terms than investors, because the lender can assess your trading accounts alongside the property. Specialist or single-use buildings usually need a larger deposit.
How long do commercial mortgages run for?
Commonly five to twenty-five years, shorter than residential. Many are arranged on a variable rate linked to base rate rather than a long fixed rate, though fixed periods are available. Terms are more negotiable than residential lending and often reflect the strength of the business.
Can I buy premises for my own business through a limited company?
Yes, and most owner-occupier purchases are structured this way. Some businesses buy through a pension scheme instead, which can be efficient but has its own rules. Take accountancy and pension advice on the structure, then we will arrange lending to match.
Are commercial mortgages regulated by the FCA?
Generally no. Commercial mortgages fall outside FCA regulation, which means the consumer protections attached to residential lending do not apply. It makes the terms more flexible and negotiable, but it also means the paperwork deserves closer reading.
What do lenders look at on a commercial mortgage?
The property, the business and you. Expect to provide two to three years of business accounts, management figures, a business plan where relevant, and details of any tenants and leases if it is an investment purchase. Personal guarantees from directors are normal.
How long does a commercial mortgage take to arrange?
Usually longer than residential — six to twelve weeks is typical. Commercial valuations take longer to produce, underwriting is manual, and the legal work is more involved. Start earlier than you think you need to.
Related
Important information
Commercial Mortgages are not regulated by the Financial Conduct Authority.
YOUR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.
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