Commercial Mortgage for First-Time Buyers
Buying your first **commercial property** is a significant step, whether you are purchasing premises for your own business or making your first commercial investment. While the process shares some similarities with residential mortgages, commercial property finance operates on fundamentally different principles, and first-time buyers face additional scrutiny from lenders.
This guide from **Commercial Mortgages Broker** explains exactly what first-time commercial property buyers can expect, the extra requirements they face and how to maximise your chances of approval.
Can First-Time Buyers Get a Commercial Mortgage?
Yes. While it is more challenging than for experienced property investors, first-time commercial property buyers can absolutely secure mortgage finance. The key is understanding what lenders need to see and preparing your application accordingly.
Lenders assess first-time commercial buyers more carefully because:
- No track record: Unlike experienced investors, there is no portfolio history demonstrating successful property management
- Learning curve: Commercial property management is more complex than residential, with longer void periods, tenant negotiations and regulatory compliance
- Higher risk perception: Statistics show that first-time commercial investors are more likely to encounter difficulties than experienced operators
However, many lenders actively welcome first-time commercial buyers, particularly those with strong personal finances, relevant business experience and realistic expectations.
What Deposit Do First-Time Buyers Need?
The deposit requirement is typically the biggest hurdle for first-time commercial property buyers.
Typical Deposit Levels
| Buyer Profile | Typical Deposit | LTV Available |
|---|---|---|
| First-time buyer, strong application | 25-30% | 70-75% LTV |
| First-time buyer, standard application | 30-40% | 60-70% LTV |
| First-time buyer, weaker application | 40-50% | 50-60% LTV |
| Experienced investor (comparison) | 20-25% | 75-80% LTV |
Most first-time commercial buyers should plan for a **30-40% deposit** as a realistic starting point. Some specialist lenders may offer higher LTV to strong applicants, but this should not be relied upon.
Where Can the Deposit Come From?
- Savings: Personal savings are the most straightforward source
- Property equity: Remortgaging a residential property to release equity for the deposit
- Business funds: If the property is for business use, retained profits may be used
- Pension funds (SSAS/SIPP): Commercial property can be purchased within certain pension structures
- Gifts or inheritance: Acceptable to most lenders, though they may request evidence of the source
- Investors or partners: Joint ventures can reduce the individual deposit requirement
**Key Takeaway:** Lenders want to see that the deposit comes from a legitimate, verifiable source. Be prepared to provide a full paper trail showing where the funds originated.
Personal Guarantees
For first-time commercial buyers, **personal guarantees** are almost always required. A personal guarantee means you are personally liable for the mortgage debt if the property or business cannot service the loan.
What a Personal Guarantee Involves
- You guarantee repayment of the full loan amount (or a specified portion)
- The guarantee typically remains in place for the life of the mortgage
- Your personal assets (including your home) may be at risk if the guarantee is called upon
- Directors of limited companies and SPVs are usually required to provide personal guarantees
How to Mitigate Personal Guarantee Risk
- Adequate insurance: Business interruption, buildings and loss of rent insurance
- Conservative borrowing: Do not overstretch on the loan amount
- Cash reserves: Maintain sufficient reserves to cover mortgage payments during void periods
- Legal advice: Take independent legal advice before signing any personal guarantee
Types of Commercial Property for First-Time Buyers
Certain commercial property types are more accessible for first-time buyers than others.
More Accessible
- Small retail units: Shops with established tenants on good leases
- Office suites: Particularly within multi-let office buildings
- Owner-occupied premises: Purchasing the property your business already rents
- Industrial units: Small warehouses and workshops with strong local demand
More Challenging
- Pubs, hotels and leisure: Require specialist sector experience (see our guide on pub and hotel commercial mortgages)
- Healthcare properties: CQC-regulated properties require operational expertise (see healthcare property finance)
- Development sites: Lenders want to see development experience before funding projects
- Large multi-let properties: Complex management requirements that lenders want experienced landlords to handle
Owner-Occupier vs Investment
First-time buyers purchasing a property for their own business use often find it easier to secure finance than pure investors, because:
- The business provides a clear, motivated occupier
- The owner-occupier has direct control over the property's use and maintenance
- Rental payments to a landlord convert to mortgage payments, often at a similar level
- Lenders view the personal commitment of an owner-occupier favourably
The Application Process for First-Time Buyers
Step 1: Assess Your Financial Position
Before approaching lenders, honestly assess:
- Available deposit: How much can you contribute, and where does it come from?
- Income: Personal income, business income or projected rental income from the property
- Credit history: Check your credit report for any issues that could affect your application
- Existing debts: Other mortgages, loans and commitments that reduce your borrowing capacity
Step 2: Seek Specialist Advice
Commercial mortgages are not regulated in the same way as residential mortgages, and the market is far less transparent. Working with a specialist broker like **Commercial Mortgages Broker** ensures you:
- Access the full range of lenders (many do not deal directly with borrowers)
- Understand which lenders are most likely to accept first-time buyers
- Present your application in the strongest possible way
- Avoid wasting time with lenders who are unlikely to approve your case
Step 3: Prepare Your Documentation
First-time commercial buyers need to provide comprehensive documentation:
**Personal documents:**
- Photo ID and proof of address
- 3 years of personal tax returns (SA302s)
- 6 months of personal bank statements
- Details of all assets and liabilities
- CV or professional background summary
**Business documents (if owner-occupier):**
- 3 years of business accounts
- Current year management accounts
- Business plan including projections
- Evidence of trading history
**Property documents:**
- Full property details including tenancy schedule
- Existing EPC certificate
- Planning use class confirmation
- Any existing surveys or reports
Step 4: Property Valuation
The lender commissions a **RICS commercial valuation**. For first-time buyers, the valuation is critical because it confirms the property is suitable security and that the purchase price represents fair value.
Step 5: Legal Due Diligence
Your solicitor (who should be experienced in commercial property conveyancing) will conduct searches, review the title, examine any existing leases and handle the legal completion process.
Step 6: Completion
Once all conditions are satisfied, the lender releases funds and the purchase completes. The entire process typically takes 8-16 weeks from application to completion.
Interest Rates for First-Time Buyers
First-time commercial buyers typically pay slightly higher interest rates than experienced investors, reflecting the additional risk lenders perceive:
- First-time buyer rates: Typically base rate + 3% to 6%
- Experienced investor rates: Typically base rate + 2% to 4.5%
The premium reduces if you have a larger deposit, strong personal income, excellent credit history and a well-prepared application.
Common Mistakes First-Time Buyers Make
Underestimating Total Costs
The purchase price is only the starting point. Budget for:
- Stamp Duty Land Tax: Calculated on a sliding scale for commercial property
- Legal fees: Typically £2,000 - £8,000+
- Valuation fees: £500 - £3,000+
- Arrangement fees: 0.5% - 2% of the loan amount
- Survey costs: Building survey, environmental survey if required
- Refurbishment: Many commercial properties need some work before occupation
Ignoring Void Periods
Investment properties may sit empty between tenants. First-time buyers often assume 100% occupancy in their financial projections. Plan for voids of 3-6 months and ensure you can cover mortgage payments from other income during these periods.
Choosing the Wrong Property
First-time buyers sometimes chase the highest yield without considering the risks. A property offering 10% yield in a difficult location with a weak tenant may be far riskier than a 6% yield in a prime location with a strong covenant.
Not Using a Broker
Applying directly to a single bank limits your options. A broker accesses the entire market, including lenders who specifically welcome first-time commercial buyers.
Building Your Commercial Property Track Record
Your first commercial property purchase builds the track record that makes subsequent purchases easier and cheaper. To maximise this:
- Manage the property well: Good rental income and minimal voids demonstrate competence
- Maintain the property: Protect its value and avoid issues at the next valuation
- Keep records: Detailed financial records of income, expenditure and management decisions
- Build relationships: A good track record with one lender can lead to better terms for future purchases
Alternative Routes for First-Time Buyers
If a straightforward [commercial mortgage](/services/commercial-mortgages) is not available, consider:
- Bridging finance: Short-term finance to secure the property while you arrange longer-term finance or improve the property to meet lending criteria
- Joint ventures: Partner with an experienced investor who can provide the track record and potentially additional capital
- SSAS/SIPP purchase: Buy commercial property through your pension fund (specialist advice essential)
- Government schemes: Some areas offer business premises grants or loans for specific sectors
[Contact us](/contact) to discuss your first commercial property purchase with an experienced adviser who understands the challenges and opportunities for first-time buyers.
Frequently Asked Questions
Below are the most common questions we receive from first-time commercial property buyers.
*Written by Matt Lenzie, Founder of Commercial Mortgages Broker. Ex-Lloyds Bank & Bank of Scotland.*