How to finance a distribution warehouse (warehouse mortgage UK)

Yes, you can get a mortgage on a warehouse. A distribution warehouse, whether a small last-mile depot or a large regional shed, is financed with a commercial mortgage, and the question for most buyers is not whether finance exists but how it is sized, what deposit it needs and which route fits the deal. The answer depends above all on whether you are buying the warehouse to occupy it yourself or to let it as an investment, because lenders size those two cases on completely different things.

This guide sets out how to finance a distribution warehouse in the UK: whether you can mortgage one, the difference between owner-occupier and investment lending, the deposit and rates to expect, the interest cover test that usually decides the loan, the short-term and development routes, and what lenders look at. We arrange this finance across a panel of lenders as a broker and introducer; we are not a lender, all lending figures are indicative, and nothing here is financial, tax or legal advice. For what these buildings are, see our pillar guide to distribution warehouses.

Can you get a mortgage on a warehouse?

Yes. A warehouse is financed with a commercial mortgage, the business equivalent of a residential mortgage: a loan secured against the building, repaid over a term, typically of up to 20 or 25 years. Distribution warehouses are mainstream commercial property, so a wide range of lenders will consider them, from high street banks through to specialist commercial lenders, provided the building, the location and the income or business behind it stack up. The term warehouse mortgage simply means a commercial mortgage on a warehouse; there is no separate product, just the commercial mortgage applied to this asset class.

What varies is how readily and on what terms. A modern, well-located shed let to a strong tenant on a long lease is straightforward and attracts competitive terms; a vacant, dated or specialist building, or one with a short lease or weak covenant, is harder and may need a specialist lender or a short-term route first. The building's lawful planning use matters too, since storage and distribution sit in use class B8 in England, a broad and well-understood consent that lenders are comfortable with, as our use classes guide explains.

Owner-occupier or investment: which mortgage do you need?

The first fork in the road is whether your business will occupy the warehouse or whether you are buying it to let. An owner-occupier mortgage funds a trading business buying its own premises, and the lender sizes the loan mainly on the affordability of that business, its profits and cashflow, because the business both repays the loan and benefits from the building. Our owner-occupier mortgages page covers this route, which often supports slightly higher leverage because the lender can see the trading covenant directly.

An investment mortgage funds a buyer who will let the warehouse to a tenant, and the lender sizes the loan mainly on the rent the building produces, through the interest cover test, with the tenant's covenant and the lease length doing much of the work. Our commercial mortgages page sets out how investment term debt is built. The distinction is fundamental because it changes what the lender underwrites: an owner-occupier deal turns on the business's numbers, an investment deal on the rent and the tenant.

How much deposit and what rates should you expect?

Deposits on a warehouse commercial mortgage typically run from around 25 to 35 percent of value, meaning loan to value of roughly 65 to 75 percent, though owner-occupiers with a strong business can sometimes do a little better and specialist or weaker-covenant deals a little worse. The deposit is only part of the cash needed: stamp duty land tax, valuation and legal fees, lender arrangement fees and any works all sit on top, so a realistic cash plan runs well above the headline deposit. Our deposit and loan to value calculator helps you size the deposit against a target loan.

On stamp duty specifically, a distribution warehouse is non-residential property, so the UK non-residential or mixed-use SDLT bands apply in England and Northern Ireland: 0 percent up to £150,000, 2 percent on the slice from £150,000 to £250,000, and 5 percent above £250,000. Scotland uses Land and Buildings Transaction Tax and Wales uses Land Transaction Tax, both with different bands, so check the right regime for where the property sits. You can estimate the charge with our commercial stamp duty calculator.

Rates are priced individually rather than advertised, and they move with the wider interest-rate environment, the strength of the deal and the borrower, so any figure is indicative until a lender has underwritten the specific case. As a guide, term commercial mortgage pricing reflects a margin over a reference rate, with stronger deals, lower leverage, strong covenant, long lease, attracting finer margins. We do not quote a single rate here because doing so would mislead; the honest answer is that pricing follows the deal, and our job is to find the keenest terms available for it.

How does the interest cover test size an investment loan?

For an investment warehouse, the interest cover ratio usually decides how much you can borrow, more often than the loan to value does. Interest cover is the rent divided by the interest bill, and lenders want it comfortably above a floor, commonly around 125 to 150 percent, calculated on a stressed interest rate rather than today's pay rate, so the loan still covers if rates rise. Because the rent is fixed by the lease, the interest cover test caps the loan at whatever level keeps the cover above the floor, and on keenly priced, low-yielding assets that cap can bite before the loan to value limit does.

The practical lesson is that the yield on the asset drives how much debt it supports, which our guide to industrial property yields works through in full. A higher-yielding building produces more rent per pound of value, so it clears the cover test at higher leverage; a keenly priced, low-yielding prime shed produces less rent per pound and supports proportionately less debt. Modelling the interest cover before you offer, rather than after, is the single most useful thing a warehouse investor can do, and it is where we start every investment case.

What if the warehouse is vacant or needs work?

A term commercial mortgage is built for a completed, income-producing or owner-occupied building. Where the warehouse is vacant, part-let, needs refurbishment, or is being bought in a situation that does not yet fit a term lender, short-term finance bridges the gap. Bridging finance lends against the asset as it stands, quickly, and is repaid by a later refinance or sale; acquisition finance funds a purchase that needs to complete before the long-term structure is in place. The pattern is to use short-term debt to acquire and improve, then refinance onto a cheaper term mortgage once the building is let and stabilised.

1. Acquire with short-term finance

   A bridge or acquisition facility funds the purchase of a vacant, part-let or value-add warehouse that a term lender would not yet support.

2. Add value

   Refurbish to a lettable, energy-compliant standard, secure a tenant, or regularise the planning position, lifting the income and the value.

3. Refinance onto a term mortgage

   With income in place and value improved, refinance onto a commercial mortgage at better terms, repaying the short-term facility.

Energy performance is a common reason work is needed. The current minimum to let commercial property in England is EPC band E, and the government has consulted on a higher trajectory, so a building below standard may need upgrade works before it can be lawfully let, which is exactly the kind of value-add a short-term-to-term structure funds. Our guide to refurbishing industrial units covers the works side, and refinance covers releasing value once they are done.

Where the plan is to build a new warehouse rather than buy one, development finance funds the construction in stages, drawn against certified progress and repaid from sale or a refinance onto an investment mortgage once let. Our construction costs guide and development finance calculator help size that route.

What do lenders look at, and how do we help?

A lender assessing a warehouse loan works through a consistent list. They look at the location and how easily the building would re-let, the building specification, doors, eaves, yard and condition, the lawful planning use, the lease and the tenant's covenant for an investment deal, or the trading business for an owner-occupier deal, the energy rating, and the borrower's experience and finances. A strong answer on each of these unlocks better leverage and pricing; a weakness on any of them is where terms tighten or a deal moves to a specialist lender.

Our role is to take that case to the right lender. Because we are a broker and introducer across a panel of lenders rather than a single lender, we can match the specific warehouse and borrower to the lender most likely to support it on the best terms, model the interest cover and leverage before you offer, and structure the route, term, bridge to term, or development, that fits the deal. We do not lend; we arrange. You can start by modelling the numbers with our commercial mortgage calculator and how much can I borrow calculator.

A note on regulation: most commercial lending on a distribution warehouse is unregulated, because it is a business or investment loan secured on commercial property. Where a loan would instead be secured on a borrower's home, or otherwise falls within the FCA perimeter, it is regulated and is referred to an appropriately authorised firm. We identify which applies at the outset so the right protections are in place.