Should I buy or rent my business premises?

Most owners who could buy their premises do not. They assume the deposit is out of reach, because the first quote they got asked for 30% in cash. For around a third of the trading businesses we look at, that assumption is wrong, and they have been writing rent cheques for years they did not need to write. This guide covers what the deposit actually has to be, which lenders go above the 70% LTV most owners are quoted, and how the 100% LTV professional practice route works. The affordability checker further down runs your numbers in two minutes.

Why are most UK businesses tenants, not owners?

Britain has a Generation Rent problem in business. The Property Industry Alliance's Property Data Report 2023 puts around 55% of UK commercial property by value in tenant hands, not owner hands. Flip that for housing and almost two-thirds is owner-occupied. So the commercial market treats tenancy as the default, which makes sense for an early-stage tenant who needs to be able to walk away, and zero sense for the business that has paid rent from the same shop, surgery, or unit since 2015.

The cause is not lack of appetite. Sit across from any settled owner-manager for half an hour and the answer comes out the same way: they would rather own the building than pay rent into a stranger's pension. What stops them is the cash. Traditional commercial lending wants 25% to 40% of the purchase price upfront. On a £600,000 unit that is £150,000 to £240,000, before you factor in stamp duty, legal fees, valuation, and the lender's arrangement fee. A profitable but cash-light business looks at that number and walks back to the lease renewal. We have watched this happen in our own client base, year after year, and the maddening part is that for a meaningful chunk of those owners, the number never had to be that big.

Can your business afford to buy its premises? Use the checker

Run your numbers through the checker below. It applies the FDC minimum loan size of £250,000, the 80% and 100% LTV ceilings, a representative 2026 commercial mortgage rate, and a standard DSCR test. The traffic light tells you whether the case is workable as it stands, worth a conversation, or not yet ready.

Should I rent or buy my business premises?

Rent suits a business that has to be able to move. If you might outgrow the space in three years, if you are unsure your sector belongs in this town long-term, or if your trading line is volatile, owning a building is a constraint and not an asset. A lease lets you walk at the next break. A mortgage does not.

Buying suits a business that has settled into the type of premises it operates from. The argument is not romantic. It is arithmetic. Rent gets replaced with equity. The landlord stops getting your money, and a debt you own does. Rent reviews stop existing because there are none. Capital growth, however modest, accrues to you. At the end of a 20-year term, you own a building that the business can sell, refinance, or move into a pension. None of that exists at the end of a lease, and the lease still wants paying tomorrow.

What I have noticed across the last two years is more owner-managers asking the question seriously. Not the version of the question that gets asked at 28, with no accounts and a vague hope. The version that gets asked at 47, after a decade of P&Ls. Where the case stacks up, it usually really stacks up. Where it does not, we say so, and the client stays on the lease for another five years and we revisit at the next review.

When renting is the right answer

You expect to move, grow, or contract within the next 5 years. Your trading profile is too volatile to commit to a long-term debt. You have not yet built up two years of clean accounts. You do not have the cash for deposit and fees. The premises you want is not for sale at a sensible multiple of rent.

When buying is the right answer

You have traded profitably from the same type of premises for at least two years. Your DSCR clears 1.30x. You have the cash for fees, or you qualify for 100% LTV as a professional practice. You expect to stay in the same broad location for at least seven years. The asking price is within 5% to 10% of the property's open-market value.

How much deposit do I need to buy commercial premises in the UK?

The honest answer: it depends entirely on which route you take. Most owners get given one route only, because that is the route their existing business bank does, and the conversation ends there. Route one is the traditional commercial mortgage: 25% to 40% deposit. Generations of owner-managers have heard that quote and gone back to renting. Route two is specialist owner-occupier lending at 80% LTV, which is a 20% deposit. Route three is professional practice lending at up to 100% LTV. Zero property deposit, subject to serviceability. The spread between route one and route three is enormous, and almost no one outside specialist commercial broking talks about it on the high street.

Fees and Stamp Duty Land Tax are not part of the deposit, but they have to come from somewhere. Budget 4% to 6% of the purchase price for total transaction costs: SDLT, legal fees, valuation, and lender arrangement fees. Even a 100% LTV deal needs cash on the table for fees.

Which lenders offer 80% LTV or 100% LTV for owner-occupier commercial mortgages?

The market is starting to respond to the deposit problem, but quietly. A small group of specialist commercial lenders, names you will not see on the high street unless you go looking, will go to 80% LTV against owner-occupier freehold premises if the trading profile is clean and the DSCR works. A smaller group again, mainly the clearing banks who keep dedicated healthcare and professional sector teams, will go to 100% LTV for a regulated practice buying its own premises. The 100% loan gets underwritten on the practice income, not on the building. The bricks are the security. The repayment comes from the patient list.

Why the 100% LTV route exists at all: the lender is underwriting the goodwill, not just the bricks. A dental practice with 4,000 patients, an established surgery list, and a fistful of NHS UDA contracts has demonstrable, transferable value. So does a vet practice with a stable client base, a law firm with a balanced fee book, or an accountancy practice with recurring engagements. From the lender's seat the cash flow services the loan whether the building's vacant value matches the price paid on completion day or not. That is a very different mental model from the high street looking at a small industrial unit and asking what it would let for if the owner walked out tomorrow.

What does a 100% LTV mortgage look like for a dental practice?

This shape of deal is more common than most owner-managers assume. The structuring sits between the lender's healthcare team, the broker, and the practice's accountant. Done properly, the deposit barrier evaporates entirely. Done badly, the practice burns three months chasing a high street lender who was never going to do it.

Should I buy through my trading company or a separate property SPV?

Most of the owner-occupier deals we put together use what lenders call a prop co / op co structure. You set up a separate limited company, the SPV, whose only job is to own the freehold premises. Your trading business pays rent to that SPV. The SPV uses the rent to service the mortgage. On paper it looks more complicated than buying through the trading company itself. In practice it is the cleaner answer, and it future-proofs the position.

The benefit shows up the day you decide to sell the trading business or retire. If the premises sit inside the trading company, whoever buys the business gets the property too, or you have to extract it on the way out, which is an awkward and expensive bit of accounting. If the premises sit inside a separate SPV that you own personally or with a partner, you sell the operation clean, you keep the building, and the new owner of the trading business pays you rent. Or you let the unit to an unrelated third-party tenant entirely. You have converted a working asset into a yielding investment property without selling anything.

Lenders are entirely comfortable with this structure. The specialist owner-occupier and professional practice lenders we work with often ask for it as standard on the larger deals. The SPV signs the mortgage, the trading company signs an arm's-length lease to the SPV at open-market rent, and the lender takes a debenture over the SPV plus personal guarantees from the directors. Tidy on the legals, sensible on the tax, and clean if you ever need to refinance or sell either side independently.

There is no single right answer. The right vehicle depends on your tax position, your succession plan, and whether you want the property to stay in the family long-term. Always seek advice from an accountant before exchange. Every year we see at least one owner trying to pull the freehold out of the trading company on the way to a sale. It is fixable, but it costs real money in CGT and SDLT that the right structure at day one would have avoided entirely. Get it right at the start. Cheaper, cleaner, and the lender is happier too.

How does the indicative monthly cost of buying compare to renting?

Month for month, buying is rarely cheaper than renting at the headline figure. A commercial mortgage on a £600,000 unit at 7.25% over 20 years runs around £4,740 a month. Rent on the same unit might be £3,200 a month, depending on use class and location. The owner pays £18,000 to £19,000 more in cash per year out of the gate.

Then the gap closes and reverses. Rents usually review every three or five years and almost always upwards. Mortgage payments stay broadly flat, or fall as you pay down capital. Somewhere between year 7 and year 12, depending on rent inflation, the owner-occupier crosses below the tenant on monthly cost. By year 20 the building is yours, and the tenant is still writing a monthly cheque on whatever the rent has compounded to. We have run this calculation for clients across dozens of deals over the years. The crossover usually arrives sooner than the spreadsheet looked like it would, because rent reviews compound faster in real life than they do in a flat assumption on a model.

How is affordability assessed on an owner-occupier commercial mortgage?

Lenders use Debt Service Coverage Ratio, DSCR. They look at the last two or three years of accounts, normalise the profit figure for one-off items, and check that EBITDA covers the annual mortgage cost by 1.30 to 1.50 times. Some specialist lenders accept 1.20 for a strong covenant. Most decline below 1.20.

What we see in practice is that DSCR is shaped more by how the accountant adjusts the EBITDA than by the underlying numbers. A clean add-back for owner-director salaries above market, a one-off legal bill, or an unusual marketing spend can be the difference between a 1.25x and a 1.40x calculation. That, in turn, is the difference between needing a specialist lender and getting the deal placed on the high street. Have your accountant produce the adjusted EBITDA workings before you go to a broker, not after.

That is the test. It is not run on the property's rental value, it is run on your trading profit. The conversation a broker has with the lender is about the business, not the building. Get the DSCR right and the property assessment becomes the easier piece of work.

What are the main risks of buying your business premises?

Buying anchors your business to a single building. If the trading area shifts, if footfall moves to the other end of the high street, if you outgrow the unit, you are stuck in a way a tenant on a five-year lease is not. Values can fall as well as rise. Commercial property is illiquid, a sale can take six to twelve months even at the right price. Interest rates can rise during a variable-rate period and your DSCR walks down with them. The mortgage is secured against the building, so the default route is repossession, same as any other secured lending.

The cases we find hardest to place are not the ones with weak income. They are the ones with awkward property. Short residue on what was sold to the borrower as freehold. Restrictive covenants the borrower had not noticed (no licensed premises within 200 yards, no change of use, no consent to extend without trustee approval). An asbestos register that comes back red. Contamination on the valuation. A flat above the unit with a leaseholder who refuses to sell their lease at any price. The income case is usually the easier piece of work. Get the property diligence done before the agent's deadline, not after.

Buying business premises: frequently asked questions