Commercial Mortgage Deposit. How Much Do You Need?
Sam Griffin
The deposit required for a commercial mortgage is one of the first practical questions most borrowers ask, and the answer varies more than they typically expect. Unlike residential mortgages, where deposit requirements are relatively standardised, commercial mortgage deposits depend on the type of property, the purpose of the loan, the borrower's financial profile, and the lender's own risk appetite. Understanding the typical ranges before you start speaking to lenders helps you assess whether you are ready to proceed and what terms are realistic. For a general introduction to how commercial mortgages work, see what is a commercial mortgage.
Standard deposit requirements by property type
Owner-occupier commercial mortgages, where a business is buying premises it will trade from, typically require a deposit of 20% to 30%. This means the lender will advance up to 70% to 80% LTV. The lower end of this range, 80% LTV, is available to strong borrowers with clean financials and well-located mainstream property. Most standard owner-occupier transactions sit at 70% to 75% LTV, requiring a 25% to 30% deposit.
Commercial investment mortgages, where the borrower is buying a property to let to a third party, require more. Most lenders work to 65% to 75% LTV for investment property, meaning a deposit of 25% to 35%. The higher deposit requirement reflects the additional risk. The lender is depending on rental income from a tenant rather than the borrower's own trading income to service the debt.
Specialist property types, including pubs, care homes, hotels, petrol stations, and other operational businesses tied to a physical premises, attract the most conservative LTVs. Deposits of 35% to 40% or more are common, reflecting the fact that these assets are harder to sell quickly in a default scenario and have a narrower pool of potential buyers.
Why LTV matters beyond the deposit
The deposit is not just the amount you need to find upfront. It directly determines the rate you will be offered. Lenders price commercial mortgages based on the risk of the loan relative to the property value. The more equity you contribute, the less exposure the lender has, and the lower the rate they can offer.
In practice, the difference between a 25% deposit (75% LTV) and a 35% deposit (65% LTV) on a standard commercial property can be 0.5% to 1% APR on the interest rate. On a £500,000 loan over ten years, that difference compounds to a significant total cost saving. If you are close to a lower LTV threshold and can bridge the gap, it is worth the effort. For how rates are structured across different LTV bands, see commercial mortgage rates explained.
What can count as a deposit
The deposit does not have to come entirely from business cash reserves. Lenders will consider several sources when assessing the equity contribution.
Business cash savings are the most straightforward. The lender will want to see evidence of where the funds have come from, typically three to six months of bank statements showing the deposit has been held rather than recently acquired.
Equity in an existing property, either commercial or residential, can serve as part or all of the deposit contribution. This typically involves placing a charge over the existing property as additional security rather than liquidating the equity through a sale. Some lenders will accept a second charge on a property with an existing mortgage if there is sufficient equity.
Director's personal capital is acceptable to most lenders for limited company borrowers. The source and history of the funds will be scrutinised in the same way as business savings.
What if you cannot meet the standard deposit requirement
If the deposit you have available falls short of what the lender requires, there are a few options worth considering.
Additional security can substitute for a larger cash deposit. Offering a charge over another property alongside the one being purchased, known as cross-charging, allows a lender to advance more against the primary property because the combined security covers their exposure. Not all lenders offer this, but specialist commercial lenders often will.
A bridging loan can sometimes provide temporary capital to bridge the gap between what you have and what you need. This is a short-term and relatively expensive solution, but it can make sense where the deposit shortfall is small and the bridging cost is manageable relative to the transaction. For how bridging finance works in a property acquisition context, see bridging loans for property investors.
Mezzanine finance is available from specialist lenders to top up a deposit, though it is more expensive than a commercial mortgage and not appropriate for every transaction.
Frequently asked questions
Can I use a personal loan for the deposit on a commercial mortgage?
In most cases, no. Lenders will check the source of your deposit and typically require it to come from your own savings, business reserves, or equity in an existing asset. A personal loan borrowed specifically to fund the deposit increases total debt and undermines the equity contribution that the deposit is supposed to represent.
Is the deposit the same as equity?
For a purchase, yes. The deposit is the equity you contribute at the outset, and it determines your starting LTV. Over time, as you repay the mortgage and (ideally) the property appreciates, your equity increases even if you do not make additional capital contributions.
Do I need the full deposit in cash before I apply?
Not necessarily, but you need to demonstrate that the funds exist or will be available by completion. Some lenders will issue a decision in principle and proceed with underwriting before the deposit has formally cleared, but they will require evidence of where it is coming from. Speak to your broker about the lender's specific requirements.
Can I get a commercial mortgage with a 10% deposit?
For most standard commercial property, a 10% deposit (90% LTV) is not achievable through mainstream commercial mortgage lenders. Some government-backed schemes and specialist lenders offer higher LTV products for certain property types or borrower profiles, but these are not widely available. For most transactions, 20% to 25% is the realistic minimum starting point.
How does the deposit affect my monthly repayments?
A larger deposit reduces both the loan amount and, typically, the interest rate. Both effects reduce the monthly repayment. On a £500,000 property with a 25% deposit, you borrow £375,000. With a 35% deposit, you borrow £325,000 at a potentially lower rate. The combined effect on monthly repayments can be significant over a long term. Use these numbers as a starting point when speaking to your broker about what you can realistically service.
This article is for informational purposes only and does not constitute financial advice. Always seek independent advice before making financial decisions.
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