Commercial property loan deposits: LTV, valuations and purchase costs

There is no single commercial mortgage deposit requirement. As a provider-specific example, NatWest gives 25% of property value as a guideline and states that the actual requirement depends on its assessment. Do not assume this means every property or applicant can obtain 75% borrowing.

Ask which loan-to-value limit applies to your own transaction, how the property will be valued and whether fees added to the loan count towards the limit. Affordability can also restrict borrowing even when the security value appears sufficient.

Loan-to-value, or LTV, is loan amount divided by accepted property value, expressed as a percentage. In the scenarios below the £500,000 purchase price and accepted valuation are identical. The assumed LTV limits illustrate arithmetic, not provider offers.

Suppose you agree a £500,000 price, but the lender accepts a £450,000 valuation and allows 70% LTV. The resulting loan ceiling is £315,000: £450,000 multiplied by 70%. You would need £185,000 towards the price rather than the £150,000 assumed when both values were £500,000.

That £35,000 difference must be resolved through additional acceptable funds, renegotiating the price or changing the transaction. It cannot be covered by simply repeating the original deposit percentage. Ask about valuation assumptions before making commitments that depend on the higher loan.

Also distinguish an affordability shortfall from a valuation shortfall. If the business can support only a £300,000 loan, a £315,000 security-based ceiling does not make the larger borrowing affordable.

For a straightforward £500,000 freehold non-residential purchase in England or Northern Ireland, the current SDLT bands produce £14,500 before any applicable relief: £2,000 on the £150,000–£250,000 portion and £12,500 above £250,000. This example assumes those rules apply to the transaction; leases, linked purchases and other circumstances require their own calculation.

Wales uses Land Transaction Tax and Scotland uses Land and Buildings Transaction Tax. Do not apply the English and Northern Irish example to a purchase in those nations.

Using the 70% LTV scenario above, £150,000 towards the price plus £14,500 SDLT already gives £164,500 before legal work, valuations, lender or broker fees and repairs. Get those estimates separately. Check with your solicitor whether VAT affects the purchase and the amount you need at completion.

A larger deposit reduces the amount borrowed, but also removes liquid cash from the business. For a hypothetical borrower deciding between £125,000 and £150,000 of deposit, the extra £25,000 should be compared with the value of keeping that money available for operations or unexpected works.

Request two comparable lender illustrations rather than assuming a higher deposit automatically produces a worthwhile rate reduction. Calculate the difference in interest, fees and payments, then test whether the remaining cash reserve is sufficient. A property purchase that uses every available pound leaves little room for error.