Why More Businesses Are Turning to Commercial Mortgages to Secure Their Premises

Introduction

The commercial property market is experiencing a noticeable shift. For years, many SMEs viewed renting as the most practical option, avoiding the upfront costs of ownership. But with more landlords choosing to sell and offering tenants first refusal, the demand for commercial mortgages is increasing.

For business owners, this change represents more than just a property transaction — it’s an opportunity to lock in stability, control costs, and invest in their long-term future.

Growing Demand for Commercial Mortgages

Lending activity in the sector has been rising steadily. UK Finance reported that £43.5 billion in commercial property loans were advanced in 2023, nearly 9% higher than the year before. Crucially, a large proportion of this growth came from businesses purchasing premises for their own use rather than speculative investors.

Other key figures paint the same picture:

• 62% of SMEs that own their buildings say it has improved long-term security.

• Roughly one in three landlords is expected to sell within the next three years.

• Research from Savills indicates commercial property values rose 4.8% in 2023, making ownership not just secure but potentially profitable.

Why Companies Are Buying Instead of Renting

1. Financial Control

Owning through a commercial mortgage removes uncertainty linked to lease renewals or rent increases. Businesses gain the freedom to budget with certainty and plan growth without fear of relocation.

2. Comparable Monthly Costs

Deposits of around 20–30% are typical, but repayments can be close to — or even less than — equivalent rent. With fixed-rate options, businesses can shield themselves from future interest rate hikes.

“In many cases, we’ve seen mortgage repayments work out cheaper than a business’s rent, while at the same time they acquire an appreciating asset,” explains Dave Farmer, at Lime Finance Solutions.

3. An Asset That Appreciates

Instead of paying rent that delivers no return, businesses investing in property often see capital growth. This makes ownership both a practical decision and a sound investment.

The Role of First Refusal

A growing number of landlords are offering existing tenants the option to buy before placing properties on the open market. This is beneficial for both sides:

• Landlords secure a quick, straightforward sale.

• Tenants avoid competing bids and can remain in familiar premises.

According to the British Property Federation, almost half of 2023 commercial sales involved tenant buyers taking advantage of these opportunities.

Rising Rental Costs Are a Key Factor

Escalating rents are another reason more businesses are opting for ownership. The Guardian recently reported that UK rents rose by 9% year-on-year to February 2024, the steepest increase since 2015.

• London saw a 10.6% rise, pushing average monthly rents above £2,000.

• England overall recorded an 8.8% rise, while Scotland and Wales exceeded 9%.

For SMEs already operating on tight margins, these increases make ownership through a commercial mortgage a much more attractive option. Even more so when there are specialist schemes available for such purchases.

A Real-World Example

A South East based drainage company had the opportunity to acquire their premises. When the landlord decided to sell, they were offered first refusal. By securing a commercial mortgage through Lime Finance Solutions, the business avoided relocation costs and gained an appreciating asset now valued at 15% higher than its purchase price in under two years.

Market Outlook

Several structural factors are accelerating this trend:

• Landlords cashing in: With strong property values and possible tax changes ahead, many landlords are exiting.

• Rental inflation: Costs are rising faster than inflation in several regions.

• Greater lender appetite: Both banks and specialist lenders are competing to provide commercial mortgage products tailored to SMEs.

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Conclusion

For businesses seeking long-term growth, a commercial mortgage is now more than a financing product — it’s a strategic choice. Rising rents, landlord sales, and favourable lending conditions are combining to make ownership the smarter option for many SMEs.

At Lime Finance Solutions, we specialise in helping businesses explore their commercial mortgage options, ensuring the move from tenant to owner is smooth and strategically sound.