How much deposit do I need for a commercial mortgage?

It’s an exciting time – buying a property. Whether it’s your first commercial property acquisition, or you’re a property developer who has upgraded and sold hundreds of buildings, there’s nothing quite like picking up the keys to a fresh property you now own.

But once you’ve found a property you like, there’s still quite a journey before those keys are yours, including finding, applying for, and obtaining a commercial property mortgage.

For many businesses, that journey becomes even longer when you factor in saving for a deposit, which begs the question: how much should you save?

What’s the typical down payment for a commercial property mortgage?

How much you need for a commercial mortgage deposit will depend on the property you’re looking to acquire. As a general rule of thumb, you’ll need to pay around 25% of the total cost of the property upfront. So, for a £500,000 property, you’d need to gather together a deposit of £125,000.

This can sometimes come as a bit of a surprise if you’re accustomed to residential mortgages, where deposits can sit at around 10% of the cost of the property.

A deposit isn’t the only cost

A deposit isn’t the only cost you’ll be faced with when first taking out a traditional commercial property mortgage. It’s possible you’ll also need to pay admin fees, broker fees, stamp duty, valuation fees, and legal fees, so be sure to factor these into your budget.

Should I pay a bigger deposit?

While 25% is usually the minimum, it is entirely your right to decide to pay more than the standard deposit. Whether or not to pay more is entirely up to you, but here are some factors you may like to consider to help you decide:

• Reduced monthly payments: A bigger upfront payment will reduce your monthly instalments.

• Less costly: A smaller mortgage would likely equal a lower lifetime cost, as you would be paying interest on a smaller amount. This would make the mortgage “cheaper” long-term. Not only that, but many lenders offer lower interest rates to borrowers who put forward a bigger deposit.

• Easier approval process: A bigger deposit shows commitment, you may find it easier to get approved for a mortgage if you put forward a bigger deposit.

There are also valid reasons why you would choose not to pay a bigger deposit, these include:

• Opportunity loss: The funds you pay towards the deposit are not available to be used elsewhere. While this can be good for your property ambitions, it might equal an opportunity loss in an area like marketing where your money could be used to produce additional revenue.

• Cash flow: If you’re overexerting yourself in order to pay a bigger deposit, that can have an impact on cash flow and impede on your ability to pay employees and suppliers. Only pay out what you can afford.

Find a suitable commercial mortgage with Funding Options by Tide

We help borrowers find suitable commercial mortgages by matching them to our network of over 120 lenders. Our lenders offer eligible borrowers between £1000 and £20M in financing solutions. Just click the link below to find out if you’re eligible.

Find out if you’re eligible for a commercial mortgage

Please note that the information above is not intended to be financial advice. You should seek independent financial advice before making any decisions about your financial future.

It’s important to remember that all loans and credit agreements come with risks. These risks include non-payment and late-payment of the agreed repayment plan, which could affect your business credit score and impact your ability to find future funding. Always read the terms and conditions of every loan or credit agreement before you proceed. Contact us for support if you ever face difficulties making your repayments.

Funding Options, now part of Tide, helps UK firms access business finance, working directly with businesses and their trusted advisors. Funding Options are a credit broker and do not provide loans directly. All finance and quotes are subject to status and income. Applicants must be aged 18 and over and terms and conditions apply. Guarantees and Indemnities may be required. Funding Options can introduce applicants to a number of providers based on the applicants' circumstances and creditworthiness. Funding Options will receive a commission or finder’s fee for effecting such finance introductions.