Purchasing commercial property can be one of the most rewarding moves for a business owner or investor, but it’s also one of the most costly. The challenge isn’t just finding the right premises, it’s understanding how much you can realistically afford without overstretching your finances. Unlike residential property, commercial mortgages involve more complex criteria, higher deposits, and often stricter lending conditions.
So, how do you work out your affordability before stepping into the market? Let’s break it down.
Step 1: Understand your deposit and loan-to-value (LTV)
Most lenders will require a deposit of 25 – 40% for commercial mortgages, depending on the property type and your credit profile. For example, if you’re looking at a property worth £500,000, you may need £150,000 or more upfront.
Your deposit size directly affects how much you can borrow. The smaller the deposit, the higher the loan, and the stricter the affordability checks will be.
Step 2: Factor in business income and repayment capacity
Commercial lenders want to see that your business generates enough profit to cover the mortgage repayments comfortably. Typically, they’ll look at your trading history, annual turnover, net profits, and future forecasts.
As a rule of thumb, lenders like to see your mortgage repayments as no more than 30–40% of your net operating income. If your repayments exceed this, you may be borrowing beyond your means.
Step 3: Account for interest rates and repayment terms
Interest rates for commercial mortgages vary widely, often linked to your risk profile, the sector you operate in, and the property type. A property in a prime location with a strong tenant will usually attract lower rates than a niche or high-risk business property.
Repayment terms typically range from 5 to 25 years. A longer term may reduce your monthly repayments, but you’ll pay more in total interest over the life of the loan.
Step 4: Don’t forget the extra costs
Affordability isn’t just about deposit and repayments. You’ll also need to budget for:
- Valuation and survey fees
- Legal fees
- Arrangement fees (often 1–2% of the loan)
- Stamp duty land tax
- On-going maintenance, insurance, and running costs
These additional expenses can add tens of thousands to your upfront and ongoing costs, so they must be factored in early.
Step 5: Use a commercial mortgage calculator
Once you have your deposit, income, and expected loan amount in mind, a commercial mortgage calculator can help you estimate repayments and understand how different loan scenarios would impact your budget. This tool won’t give you a definitive answer; only a lender can do that, but it’s a powerful way to sense-check whether your plans are realistic.
Step 6: Seek professional advice
Even the most careful calculations can miss the finer details. Commercial mortgages are not one-size-fits-all, and every lender has different commercial mortgage criteria. Speaking to a specialist broker or adviser can save you time, prevent costly mistakes, and potentially secure you better terms.
Final thoughts
Figuring out how much commercial property you can afford is about more than finding the right price tag. It’s a balance of deposit, income, repayment terms, and additional costs, all of which must be weighed against your business’s financial health. By calculating affordability upfront and seeking the right advice, you’ll put yourself in a stronger position to make a confident, sustainable investment.
