A UK limited-company manufacturer can use a commercial mortgage to buy a factory or warehouse, usually with the property as the main security. Approval depends on two separate tests: the lower of purchase price and valuation must support the loan, and the trading company must still afford repayments after the deposit, tax, move, fit-out and production disruption. Passing one test does not rescue failure on the other.
The lender is underwriting a building and a manufacturer
An owner-occupied commercial mortgage sits within property finance, but it is not decided on the property alone. The lender needs a saleable industrial building and a trading company capable of servicing the debt through an ordinary and a difficult year.
That produces two linked underwriting tracks:
| Track | What the lender tests | Evidence that matters | What can reduce the loan or stop the deal | |---|---|---|---| | Property security | The value and saleability of the factory or warehouse | Lender valuation, title, authorised use, environmental searches, condition, access and market comparables | A valuation below the agreed price, contamination, restricted access, very specialist construction, short leasehold title or expensive remedial work | | Trading affordability | Whether the company can pay interest and capital from operations | Filed accounts, current management accounts, bank statements, forecasts, order book and existing debt schedule | Thin debt-service headroom, volatile margins, a move that interrupts production, customer concentration or unrecorded tax and creditor pressure | | Transaction cash | Whether the buyer can complete and relocate without exhausting liquidity | Deposit evidence, tax advice, professional-fee budget, relocation plan, fit-out quotes and cashflow forecast | Treating the deposit as the entire cash requirement, relying on an undrawn overdraft that the bank may withdraw, or funding long-lived property with short-term debt | | Exit | How the debt will be repaid if the original plan changes | Amortisation profile, remaining useful life of the site, saleability and any refinance plan | A large final payment with no credible refinance, a property too specialised for other occupiers or early-repayment costs that block a planned sale |
The repayment source should be the manufacturer’s trading cashflow. Rent from a genuine surplus unit can help, but lenders may discount proposed rent until there is a tenant, a signed lease and evidence that the space can lawfully and practically be occupied separately. A spreadsheet assumption that half the warehouse will be sublet is not the same as contracted rent.
The borrowing entity also matters. The trading company may buy and occupy the property itself, or a separate limited company may own it and lease it to the operating company. A separate property company does not make trading risk disappear: a lender may require guarantees, cross-security or a lease that connects the two companies. Decide the ownership structure with the accountant and solicitor before an application is submitted, because changing purchaser late can force fresh underwriting, tax work and legal documents.
What lenders will fund, reserve or decline
“Reserve” means the lender may hold back part of the advance, impose a condition or require the borrower to keep cash aside. The exact response depends on the property, the company and the lender; the matrix is a preparation guide, not a promise of credit.
| Cost or issue | Usually fund as part of the mortgage | May reserve, hold back or condition | Commonly leave to the borrower or decline | |---|---|---|---| | Factory or warehouse purchase | A percentage of the lower of purchase price and lender valuation, secured by a first legal charge | A retention until specified repairs, title points or planning conditions are resolved | The price above valuation and the borrower’s equity contribution | | SDLT, LTT or LBTT, legal work and valuation | Rarely treated as property value | Some fees may be added to the facility only if the lender permits it and the overall leverage still works | Buyer’s transaction taxes and most professional costs should be budgeted in cash | | VAT on the property | Sometimes addressed through a separate short-term VAT facility | Evidence of VAT registration, recovery position and expected repayment timing | Do not assume the term mortgage will fund VAT or that all VAT is recoverable | | Power supply, racking, extraction, cranes and fit-out | Fixed improvements may support value after completion, but not necessarily pound for pound | Staged draw or evidence that works are complete and signed off | Bespoke fit-out with weak resale value; costs incurred before approval | | Production machinery | Only where specifically included in the valuation and security package | Separate valuation or charge over named assets | Usually better assessed under asset finance rather than hidden inside the property request | | Surplus space to be sublet | Existing, documented rent may contribute to affordability | Proposed rent may be discounted pending a tenant, lease, consent and compliant EPC | Informal licences, optimistic rent or space that cannot be separated safely or legally | | Older roof, asbestos or contamination | The underlying property may remain fundable | Specialist reports, remediation budget, insurance conditions or cash retention | Unquantified contamination, unacceptable structural risk or no workable remediation plan | | Weak trading headroom | A lower loan may be possible if the business still services it | Extra equity, tighter covenants, more information or additional security | A property-rich deal where the company cannot demonstrate sustainable repayments |
A lender valuation is not a building survey. It tells the lender whether the security supports the loan; it does not tell the buyer whether the roof, slab, loading doors, compressed-air system or electrical supply will support production. A manufacturer should commission the technical work needed for the site, particularly where machinery needs high-capacity power, foundations, extraction or overhead lifting.
The deposit is not the cash requirement
The most dangerous worksheet has one line: purchase price less mortgage. A workable worksheet separates completion cash, move cash and the reserve needed to keep trading while two sites overlap.
Fully illustrative sources-and-uses example
This example is entirely illustrative, is not a quote and contains no assumed interest rate. It describes a limited-company manufacturer buying a freehold factory in England. The seller is assumed not to charge VAT; the VAT sensitivity is shown separately below.
| Item | Visible illustrative assumption | Illustrative calculation | |---|---:|---:| | Agreed purchase price | £1,200,000 | £1,200,000 | | Lender valuation | £1,150,000 | The lower valuation is used for this example | | Mortgage sizing | 70% of the £1,150,000 valuation | £805,000 mortgage | | Buyer cash towards price | Purchase price less mortgage | £395,000 | | Non-residential SDLT | England; 0% to £150,000, 2% on the next £100,000 and 5% above £250,000 | £49,500 | | Legal, valuation, survey and lender costs | Illustrative cash budget; obtain transaction-specific quotes | £18,000 | | Power upgrade and fixed works | Illustrative supplier and network-operator budget | £130,000 | | Racking, machinery move and commissioning | Illustrative move plan | £55,000 | | Double-running and production buffer | Illustrative liquidity reserve for rent, utilities, payroll and lost output during the move | £90,000 | | Total cash required | Sum of all illustrative cash uses above | £737,500 |
The “30% deposit” shorthand would suggest £360,000. The illustrative business actually needs £737,500 because the valuation is £50,000 below price, the mortgage is calculated from that lower value, and tax, works, moving and headroom sit outside the loan. The difference is not a financing detail. It decides whether the company can continue buying materials and paying wages after completion.
The total should be modelled month by month. Exchange deposits, valuation and legal bills arrive before completion. Power and racking deposits may be payable before the keys are released. The mortgage starts while the existing lease may still be running. A prudent forecast also tests a delayed machine commissioning, a slower customer payment month and a fall in output during the move.
If the property is subject to VAT
Commercial property VAT is fact-specific. A new commercial building can be standard-rated, and a seller’s option to tax can also make a sale subject to VAT. HMRC’s VAT Notice 742 explains those circumstances, while VAT Notice 742A explains that the seller’s option does not simply transfer to the buyer.
If VAT at the UK standard rate of 20%, checked 23 August 2026, were added to the illustrative £1,200,000 price, the completion payment would include another £240,000. SDLT is calculated on VAT-inclusive consideration, even where the buyer expects to recover the VAT, so the illustrative SDLT would rise from £49,500 to £61,500. The immediate cash requirement would therefore rise by £252,000 before considering when, or whether, the company can recover input tax.
Ask the solicitor and accountant to confirm the VAT treatment before agreeing the funding stack. A recoverable tax can still create a large timing gap. A separate VAT facility may solve that gap, but its repayment must be aligned with the expected VAT recovery rather than left as open-ended short-term debt.
Preserve the money that keeps production moving
Using every available pound as property equity can leave a sound manufacturer unable to complete the move. It can be better to contribute more than the minimum equity where that secures acceptable terms, but the decision should come after the operating reserve has been protected, not before.
Different assets can carry different parts of the event:
- The commercial mortgage funds the land and building.
- Asset finance can fund eligible machinery, materials-handling equipment or other identifiable assets separately, subject to approval and useful life.
- Owned plant with recoverable value may release cash for the move. The plant-refinance guide explains when that is stronger than an unsecured loan.
- Invoice or other working-capital facilities may protect cash tied up after production restarts. A long-lead manufacturer should map the uninvoiced period described in our WIP and supplier-finance guide, rather than assume the mortgage solves it.
These facilities cannot be assembled independently. The mortgage lender needs to know about new asset debt, plant refinance, invoice-finance debentures and any borrowed deposit. Additional monthly payments reduce affordability, while existing fixed and floating charges may require consent or an intercreditor agreement. Present one complete funding plan to every lender.
Subletting surplus warehouse space
Buying extra space for planned growth can be sensible. Buying it because projected rent is needed to make the mortgage affordable is more fragile.
Before placing value on surplus-space income, establish:
- whether the title, mortgage terms, insurance and planning position allow the proposed occupation;
- whether the unit has separate safe access, fire separation, utilities, loading and welfare facilities;
- the cost of making it lettable and the time required to secure a tenant;
- who pays business rates, repairs, service costs and utilities under the proposed lease;
- whether the tenant’s activity creates environmental, noise, traffic or insurance issues for the manufacturer; and
- the EPC position. In England and Wales, the government’s non-domestic private-rented-property guidance, last updated 5 May 2026, says covered rented property generally needs an EPC rating of at least E unless a valid exemption applies.
Model the purchase both with and without the rent. If the mortgage only works with an unsigned tenant at full occupancy, there is no real contingency.
Documents for a manufacturer buying and moving premises
The useful file is not merely three years of accounts. It lets an underwriter trace the property purchase through to stable production at the new site.
Property and purchase
- Heads of terms or sale memorandum, full address, tenure, agreed price and target dates.
- Existing title documents if available, site plan, authorised planning use and details of any restrictions, easements or shared access.
- Current EPC, business-rates assessment, buildings insurance information and any leases or licences affecting surplus space.
- Building survey scope, asbestos information, environmental reports and costed remediation for known defects.
- Evidence that power capacity, floor loading, eaves height, loading access, yard depth and transport movements suit the intended operation.
- Written confirmation from the solicitor and accountant of VAT and transaction-tax treatment.
Trading company and affordability
- Three years of filed accounts if available, plus current management accounts and aged debtor and creditor reports.
- Recent business bank statements, current-year budget and a base-case and downside monthly cashflow forecast covering the move.
- Order book by customer, margin and delivery date; top-customer concentration; contract cancellations or dependencies that could affect repayment.
- Full debt schedule showing balances, monthly payments, security, expiry dates and early-settlement costs.
- Tax position, including any arrears or time-to-pay arrangement, and an explanation of material one-off movements in the accounts.
Move and capital plan
- Sources-and-uses schedule showing mortgage, company cash and every other proposed facility.
- Supplier quotes and payment dates for electrical work, extraction, racking, cranes, fit-out and machinery relocation.
- A production-transfer plan: which line moves when, commissioning time, customer communication, safety sign-off and contingency capacity.
- Existing lease expiry, break conditions, dilapidations estimate and the expected period of double occupation.
- Minimum cash reserve approved by the board for payroll, materials and disruption, rather than whatever is left after completion.
Ownership, security and governance
- Group chart identifying the proposed property owner, trading occupier and any intercompany lease.
- Register of existing charges, debentures and hire-purchase agreements, with lender contact details where consent may be required.
- Board approval for the purchase and borrowing, plus details of directors or shareholders where guarantees are being considered.
- Solicitor and accountant contacts. Property title, tax, ownership structure and security ranking should be settled by the relevant advisers, not improvised between lender applications.
Commercial mortgage, continued lease or short-term bridge?
Buying is not automatically the better decision. A commercial mortgage converts rent into long-term secured debt and gives the manufacturer control of the site, but it also concentrates capital in an illiquid asset and transfers repair, compliance and obsolescence risk to the owner.
| Decision | Commercial mortgage purchase | Continue leasing | Bridge, then refinance to a mortgage | |---|---|---|---| | Best fit | The site suits long-term operations, the company has stable debt-service headroom and enough cash remains after the move | Demand, location or required floor area may change; cash earns more in stock, people or equipment; or the right building is not yet available | A real deadline prevents a term mortgage completing, but the property and trading company have a credible route to term finance | | Main advantage | Control over occupation, alterations and future tenure, subject to planning and lender consent | Flexibility and less capital locked into property | Can meet a time-critical acquisition where ordinary diligence cannot finish in time | | Main risk | Valuation shortfall, long-term debt and expensive relocation if the site becomes unsuitable | Rent reviews, landlord control and no ownership of the freehold | Higher short-term cost, duplicated valuation and legal work, and failure to obtain the planned refinance | | Evidence needed | Full property diligence, sustainable affordability and complete sources and uses | Lease terms, incentives, dilapidations, service charge and a like-for-like occupancy-cost model | Written refinance criteria, realistic term-lender appetite and enough equity for a lower second valuation |
Bedrock would recommend continued leasing where the purchase would consume the working-capital reserve, the factory is a short-term fit, the manufacturer expects a material change in capacity or location, or lease terms offer a better risk-adjusted use of cash. A mortgage is not good finance if owning the building prevents the company from filling it with profitable work.
Bedrock would recommend a bridge only where the completion deadline is genuine and the refinance is evidenced before the bridge is signed. It is not a way to conceal weak affordability or hope that a term lender will value the property more generously later. If the borrower can obtain a conventional mortgage within the vendor’s timetable, taking the bridge first usually adds cost and execution risk without improving the outcome.
Risks to settle before signing terms
- Security. Expect a first legal charge over the property. The lender may also seek a debenture over company assets, restrictions on further borrowing or cross-security within a group. That can affect invoice finance and asset finance already in place.
- Personal guarantees. A lender may ask directors or shareholders for guarantees, particularly where the company covenant, deposit or property is weaker. The cap, enforcement triggers, independent legal advice requirement and any supporting personal asset should be understood before acceptance.
- Recourse. A commercial mortgage is not automatically limited to handing back the keys. The company remains liable for the debt and costs under its documents; guarantees and wider security can extend recovery beyond the factory.
- Concentration. One customer can support today’s order book and still weaken a long mortgage. Test whether repayments remain affordable if the largest account slows, ends or forces a margin reduction. Proposed rent from one subtenant creates a second concentration.
- Valuation. The lender normally sizes against its own valuation, not the agent’s guide price or the agreed price. A down-valuation increases the cash contribution unless the seller reduces the price.
- Property condition and compliance. Roof replacement, contamination, flood exposure, inadequate power and asbestos can create costs the valuation does not fully capture. HSE guidance confirms that the duty to manage asbestos covers factories and warehouses and can fall on the owner or party responsible for maintenance; its dutyholder guidance was accessed 23 August 2026.
- Costs. Compare total cash paid, not a headline margin: valuation, legal work, surveys, lender fees, broker remuneration, insurance, hedging or break costs, tax, registration and duplicated costs if the transaction fails. Bedrock acts as a broker and may be paid commission on completion; its published approach is on regulation, fees and data.
- Exit. Match the term to the likely occupation period and understand amortisation, any final balance, refinance assumptions and early-repayment provisions. A highly adapted site may be ideal operationally but difficult to sell to another occupier.
Companies House describes a mortgage as a company charge. Its guidance, last updated 1 February 2026, says a charge should be registered within 21 days beginning the day after it is created; the transaction solicitor and lender’s solicitor normally coordinate the filing, but the board should confirm it has happened.
The regulatory boundary
Bedrock Commercial Finance works with limited-company clients only and is not FCA regulated. A loan secured solely on a factory or warehouse used for business is generally not a regulated mortgage contract: FCA PERG 4.4.12 states that loans secured on commercial premises fall outside that definition because the property is not used as or in connection with a dwelling. The FCA Handbook guidance was last updated 27 March 2026.
Different facts can change the analysis, particularly where the security includes a dwelling, the borrower is an individual or trustee, or the property is mixed use. Raise those facts at the start and obtain legal advice on the actual transaction. Do not assume the commercial label alone decides the regulatory position.
For the tax calculation, HMRC’s non-residential SDLT rates were checked on 23 August 2026. They apply to England and Northern Ireland; commercial purchases in Wales use Land Transaction Tax and those in Scotland use Land and Buildings Transaction Tax. HMRC’s chargeable-consideration guidance, last updated 15 July 2026, confirms that VAT paid on the transaction is included when calculating SDLT. The company’s solicitor and tax adviser should calculate the actual liability.
Test the purchase before committing the deposit
To assess a factory or warehouse purchase, send Bedrock the agreed price, property address, expected valuation if known, latest accounts and management figures, current debt schedule, cash available, move-and-fit-out budget, existing lease end date and any proposed sublet income. We can then test the property mortgage alongside the other facilities without using the same pound twice.
Request indicative terms when those figures are ready. For the wider funding stack, see the manufacturing sector hub.