Key takeaways
- Commercial mortgage LTV is the percentage of a property's assessed value that a finance provider is willing to lend.
- Most commercial mortgages require a deposit of around 25% to 30%, although some property types may qualify for higher LTVs.
- A lower LTV could help you secure a more competitive interest rate.
- Your property's value, business finances and mortgage purpose all influence how much you can borrow.
How commercial mortgage LTV works
Loan to value is the amount you're borrowing compared with the value of the property. For example, if you're buying business premises worth £500,000 and borrowing £350,000, your LTV would be 70%. That means you'd need to contribute the remaining £150,000.
Commercial mortgages work a little differently. While residential buyers can often borrow 90% or more of a property's value, commercial mortgage LTV ratios are typically lower.
How lenders value the property is also different, as the basis of the valuation used by the lender has a significant bearing on the LTV calculation for commercial properties.
Market value (MV) is the estimated price a property could achieve in the open market, between a buyer and a seller, based on valuation assumptions.
Vacant possession (VP) value is what the property could be worth if sold without an occupier, tenant or trading business in place.
For properties like hotels, pubs or care homes, the vacant possession value can be considerably lower than the value of the property as a working business. Understanding which valuation your lender uses matters when planning your commercial property purchase.
What LTV ratios can businesses expect on a commercial mortgage?
There's no single maximum LTV for commercial mortgages. The amount you can borrow depends on the property type, mortgage purpose, loan size and your business's financial position.
Here's a guide to Allica Bank's typical maximum LTVs for different commercial properties.
| Property type | Owner-occupied max LTV | Investment max LTV |
|---|---|---|
| Offices, retail, industrial and warehouses | Up to 75% VP | Up to 75% VP |
| Semi-commercial (50%+ residential) | Up to 75% VP | Up to 75% VP |
| Factories and storage | Up to 75% VP | Up to 75% VP |
| Food outlets and takeaways | Up to 70% VP | Up to 70% VP |
| Restaurants and pubs | Up to 70% VP | Up to 70% VP |
| Professional practices | Up to 80% VP | Up to 75% VP |
| Hotels | Up to 100% VP | Up to 70% VP |
| Healthcare (care homes and nurseries) | Up to 70% MV | Varies by property |
| Student accommodation | Not applicable | Up to 60% VP |
VP = vacant possession value. MV = market value.
All lending is subject to status, lending criteria, and a satisfactory credit assessment. Terms and Conditions Apply. For more information visit allica.bank/commercial-mortgages
Some owner-occupiers in professional sectors, including accountancy, veterinary, architecture, surveying and manufacturing, may qualify for an additional 5% LTV above the standard maximum, subject to eligibility and credit assessment.
Different lending criteria applies depending on whether you're buying premises for your own business or investing in a property to rent out.
You can find out more about Allica's commercial investment mortgages and specialist healthcare commercial mortgages.
How LTV affects your commercial mortgage rate
Your LTV doesn't just affect how much you can borrow, it can also influence how much your mortgage costs. Generally, the lower your LTV, the less risk the lender takes on which could mean a more competitive interest rate.
At Allica, commercial mortgage pricing is split into two LTV tiers.
| LTV | Rate tier |
|---|---|
| Up to 65% | Lower rate margin |
| Over 65% | Higher rate margin |
Eligible owner-occupiers may also qualify for additional rate discounts based on factors like energy-efficient properties, larger loan sizes and strong debt service cover.
Increasing your deposit could bring down your LTV, potentially helping you access a lower rate margin. Your business's financial position and the property itself will also influence the terms available.
Want to understand how much you might need upfront? Read our guide to commercial mortgage deposits.
How to strengthen your LTV position before applying
A little preparation can go a long way when applying for commercial property finance. Here are five things worth thinking about before approaching a lender.
- Increase your deposit. Putting more money towards your property purchase reduces your LTV and could help you access a lower rate tier.
- Consider additional security. If your business owns other properties or assets, these may help support a larger loan. It's worth discussing your options with a lender or broker.
- Show you can comfortably afford repayments. Strong trading income and healthy cashflow can help show strong debt service cover.
- Get your accounts ready. Having recent annual accounts and up-to-date management accounts to hand can help avoid delays.
- Check the property's energy rating. A good Energy Performance Certificate (EPC) rating could help you access more competitive lending terms, depending on the lender.
Our relationship managers work with established businesses to help them understand their borrowing options before making a formal application. For more ways to prepare, take a look at our commercial mortgage application tips.
Frequently asked questions
What is the maximum LTV for a commercial mortgage in the UK?
There's no universal maximum LTV for commercial mortgages. It depends on the lender, property type, mortgage purpose and your business's financial position.
How does commercial mortgage LTV differ from residential?
Commercial mortgage LTVs are generally lower than residential mortgage LTVs.
While residential mortgages often allow customers to borrow 85% to 90% of a property's value, commercial property finance typically requires a deposit of at least 25% to 30%.
Does LTV work differently for owner-occupied and investment commercial mortgages?
Yes, they work differently. For owner-occupied commercial mortgages, lenders focus heavily on your business's trading income and ability to make repayments.
For investment mortgages, lenders place more emphasis on rental income and whether that income can comfortably cover the mortgage repayments. Both are assessed against the lender's commercial lending criteria.
Talk to Allica Bank about your commercial property plans
Whether you're buying your first business premises, expanding into a bigger space or investing in commercial property, we're here to help.
Allica Bank specialises in commercial property finance for established UK businesses, offering owner-occupied mortgages from £150,000 to £10 million and investment mortgages of up to £15 million.
Because we believe business banking should be personal, you'll have a relationship manager who can help you understand your options, including the LTV and lending terms that may be available for your property.
Explore Allica's commercial mortgages
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Disclaimer: This is information - not financial advice or recommendation
The content and materials featured in this article are for your information and education only, and are not intended to take into consideration any particular recipients' financial situation. The product details and interest rates referred to are correct at the time of writing.
The information does not constitute financial advice or recommendation and should not be considered as such. Allica Bank will not accept any liability for any loss, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information.
