Commercial Loans & Buy-to-Let

What’s the difference between a Commercial Loan and a Buy-to-Let Mortgage?

A commercial loan is a broad category. It can be secured or unsecured, and the funds can be used for almost any business purpose: working capital, purchasing assets, expansion, or property investment. When secured, the security might be commercial property, business assets, or in some cases residential property owned by the business or its directors.

A buy-to-let mortgage is specific: it’s a mortgage secured against a residential property that is being purchased or refinanced for the purpose of renting out. Eligibility is assessed primarily on the rental income the property will generate rather than the borrower’s personal income.

They serve different needs. If you’re growing a residential property investment portfolio, a BTL mortgage is the appropriate structure. If you need working capital or general business funding and have property to secure against, a commercial loan may be more appropriate.

Who can apply for a Buy-to-Let Mortgage?

BTL mortgages are available to individuals and limited companies. The limited company route has become increasingly popular for landlords building larger portfolios, partly for tax efficiency reasons. Both routes are accessible through the lender panel.

Lenders assess BTL applications on the property’s projected rental income, the deposit available, and the applicant’s overall financial profile. A personal income requirement is common but not universal. Some specialist lenders will approve purely on rental yield, provided it comfortably exceeds the mortgage payment.

First-time buyers can sometimes access BTL mortgages, though most lenders apply stricter criteria and require larger deposits. First-time landlords tend to find the process more straightforward if they already own their own home.

What deposit is required for a Buy-to-Let Mortgage?

Most BTL lenders require a minimum deposit of 25% of the property’s value, though 20% is possible in some cases, and certain lenders will consider 15% for very strong applications. The larger the deposit, the lower the LTV, which typically means better rates and lower monthly payments.

Higher-risk property types require larger deposits. HMOs (Houses in Multiple Occupation) and multi-unit freehold blocks are viewed as more complex by many lenders, and deposits of 30% to 40% are more common for these. Holiday let properties similarly require a larger stake and specialist lenders.

The rental income test is as important as the deposit. Most lenders require the monthly rental income to be at least 125% to 145% of the mortgage payment, calculated at a stressed interest rate. If a property doesn’t pass this test, the maximum loan may need to be reduced.

Can I hold a Buy-to-Let Mortgage through a Limited Company?

Yes, and for landlords with multiple properties it’s often worth exploring. A limited company BTL mortgage is assessed against the company’s finances rather than the individual’s, which may offer advantages in terms of tax treatment on rental income and mortgage interest.

The mechanics are essentially the same: the company applies for a mortgage, the property is owned by the company, and the mortgage is serviced from rental income. Rates are sometimes slightly higher through the limited company route than personal BTL mortgages, though this gap has narrowed as the market has grown.

The tax position depends on individual circumstances and should be discussed with an accountant before deciding which route to take. The structural decision has implications beyond just the mortgage, and getting it right at the outset is easier than unwinding it later.

What are the typical rates and fees?

BTL mortgage rates are generally higher than residential mortgage rates, reflecting the investment rather than owner-occupier nature of the lending. Rates typically range from 3% to 7% on current lender offerings, with product fees of 1% to 2% common.

Commercial loan rates vary more widely depending on whether the loan is secured or unsecured, the loan size, and the borrower’s profile. Secured commercial loans backed by property tend to be in a similar range to commercial mortgages. Unsecured commercial loans carry higher rates reflecting the lack of security.

Both products carry arrangement fees, legal costs, and valuation expenses that should be factored into the total cost calculation. Comparing the full cost of borrowing across products and lenders, not just the headline rate, is essential to identifying the genuinely best option.

How long does the process take?

BTL mortgage applications typically complete in four to six weeks for a straightforward purchase. The main variables are valuation timescales (which depend on the property type and the lender’s surveyor availability) and legal completion. Having a solicitor instructed early and a clean application ready to submit speeds things up considerably.

Commercial loan timescales depend on the loan structure. Unsecured commercial loans can be much faster. Secured facilities involving property valuations and legal checks follow a similar process to a commercial mortgage, typically running to six to ten weeks.