Commercial remortgage: refinance your property or release equity
A commercial remortgage replaces the loan on business premises or a let commercial property with a new one, usually from a different lender, and can release equity at the same time. It suits owners whose fixed rate or loan term is ending, who are paying a lender's variable rate or who want to raise capital against the property. As a broker, we compare what switching would cost with what it would save and approach lenders that fit the property.
- New loan, new lender
- A remortgage repays your existing commercial mortgage with a new loan, usually from a different lender.
- Release equity
- You can borrow more than the old balance if the valuation and the income support it.
- Count the switching costs
- Early repayment charges and fees on both loans can outweigh a lower rate.
- Secured on property
- The property can be repossessed if the new loan is not repaid.
On this page
- What a commercial remortgage is
- Why owners remortgage commercial property
- How a commercial remortgage works
- What the new lender assesses
- Why the valuation can differ from what you expect
- The costs of switching lender
- Releasing equity: what lenders accept
- Mixed-use property and FCA regulation
- Remortgage, product switch or second charge
- Risks to weigh up
- What to have ready
What a commercial remortgage is
A commercial remortgage is a new loan secured on commercial property you already own. It is usually taken with a different lender, repays the existing mortgage and can be larger than the old balance, so that you release equity as cash. If you own the property outright, the same process puts a first mortgage on it. The lender treats it as a new commercial mortgage, not a continuation of the old loan.
Why owners remortgage commercial property
- A fixed rate or the loan term ending. When the term ends, any balance left has to be repaid or refinanced.
- Moving off your lender's variable rate, after comparing what other lenders would offer.
- Releasing equity to buy another property or invest in the business.
- Consolidating borrowing into one loan. Spreading short-term debt over a long term can cost more interest overall.
- Restructuring ownership, such as moving the property into a company or buying out a partner. Whether a transfer is taxed is a matter for HMRC's rules, so ask an accountant and a solicitor first.
- Repaying a bridging loan once the property is let or trading.
A remortgage may not suit you if the early repayment charge on your current loan outweighs the saving. A new lender may also offer less than you owe if your accounts have weakened, a lease is close to expiry or the property is empty.
How a commercial remortgage works
- Get the figures. Ask your current lender for a redemption statement showing the balance, any early repayment charge and exit fees.
- Set out what you need. The amount, the purpose of any extra money and the date your current rate or term ends.
- Compare lenders. We approach lenders whose criteria fit, and you receive terms in principle.
- Apply. You supply the documents, the lender instructs a valuation and, once its underwriting is complete, issues a formal offer.
- Legal work. Solicitors for both sides check the title and any leases and prepare the new charge.
- Complete. The new lender repays the old one and any money released is paid to you.
Start well before your rate or term ends.
What the new lender assesses
The new lender underwrites the case from scratch. What it checks depends on how the property is used.
If your business trades from the property
The lender reads your trading accounts and recent management figures and tests whether profit covers the new payments with room to spare. It also looks at the owners' own finances and other borrowing. See owner-occupied commercial mortgages.
If the property is let
The lender looks at the lease terms (time left, break clauses and rent reviews), the tenant's financial strength and how many times the rent covers the loan payments. See commercial investment mortgages.
Why the valuation can differ from what you expect
The lender lends against its own valuer's figure, not the price you paid or an agent's estimate. Two bases of value matter:
- Vacant possession value: what the building would sell for empty. Lenders usually rely on it for premises you trade from, and often where the tenant is your own company.
- Investment value: what it would sell for with the tenant and lease in place. A long lease to a strong tenant supports it. A short lease or a weak tenant pulls it towards the empty value.
The gap can be wide, so ask which basis the lender will use before paying for the valuation.
The costs of switching lender
Add up every cost of leaving the old loan and setting up the new one:
- Early repayment charge on the existing loan, if you leave during a fixed-rate or tie-in period.
- Exit and deeds fees charged by the old lender for releasing its charge.
- Arrangement fee for the new loan. If it is added to the loan, you pay interest on it.
- Valuation fee, paid before the lender makes its offer.
- Legal costs for your own solicitor and, usually, the lender's.
- Broker fee, agreed in writing before you apply.
Then divide the total by what the new loan saves each month. The answer is the number of months the switch takes to pay for itself. If that is longer than the new fixed rate lasts, the saving does not cover the cost of switching. Our commercial mortgage calculator shows the monthly payment at each rate. It leaves out fees, so take the rate and costs from the lender's written offer.
Releasing equity: what lenders accept
Lenders ask what the money is for and expect a business or investment purpose they can check. Commonly accepted purposes include a deposit on another property, improving the premises, buying equipment or stock, buying out a partner and repaying other business borrowing. Money for trading losses, overdue tax or personal use is harder to place.
Expect to show evidence of the purpose, such as purchase details, quotes for works or a business plan, and accounts or leases that support the larger payments.
Mixed-use property and FCA regulation
A loan secured on property used only for business cannot be a regulated mortgage contract, and nor can a loan to a company to fund its business. Mixed-use property is different. Under FCA guidance, a loan to an individual can be a regulated mortgage contract when at least 40% of the property, measured as the floor area of every storey, is used or intended to be used as a dwelling. The main exclusion is a loan taken out wholly or mainly for business where less than 40% of the property is lived in by the borrower or a close relative: the usual position for a let investment.
If you borrow in your own name and you or a close relative live, or will live, in a flat that is 40% or more of the building, expect the remortgage to be regulated. Each loan is tested when it is taken out, so a remortgage is tested afresh. A regulated case must be handled by a firm with the right FCA permissions, and you can check any firm on the FCA Register. See semi-commercial mortgages for the detail.
Remortgage, product switch or second charge
There are three routes:
| Route | What it involves | Worth considering when |
|---|---|---|
| Remortgage with a new lender | The whole loan moves. Expect a new valuation, full underwriting and legal work, plus any early repayment charge and exit fees on the old loan. | The term is ending, you want to compare lenders or you need a larger loan. |
| Product switch or renegotiation with your current lender | The loan stays put on a new rate or new terms. Usually less work and lower set-up costs, but you see one lender's terms only. | You are content with the lender and only want new terms. |
| Further advance or second charge | The existing loan stays. Extra money comes from the same lender (a further advance) or from another lender ranking behind the first (a second charge), which needs the first lender's consent and usually costs more. | Leaving the current loan would trigger a large early repayment charge. |
For a smaller sum, a business loan can raise funds without disturbing the mortgage.
Risks to weigh up
A commercial remortgage is secured on the property. If the loan is not repaid as agreed, the lender can repossess the property and sell it. For an owner-occupier, that means losing the premises the business trades from. Also weigh these points:
- Borrowing more raises your payments and reduces your equity, and payments on a variable rate can rise.
- A repayment loan is cleared over the term. On interest-only, the full balance is still due at the end, from a sale, a refinance or other funds.
- Directors may be asked for a personal guarantee, which puts their own assets at risk. Read personal guarantees explained before signing one.
What to have ready
- A redemption statement and the loan agreement for your current mortgage.
- The property's address, tenure and use, and your estimate of its value.
- Owner-occupiers: recent accounts, management figures and business bank statements.
- Investors: the leases and a tenancy schedule with rents, lease end dates and break clauses.
- For equity release: the amount, the purpose and supporting evidence.
- Proof of identity and address for each borrower, and a list of other property and borrowing.