Underwriting concepts
Non-recourse
Loan structure where the lender's only remedy on default is the property security itself, with no personal liability falling on directors or shareholders.
Non-recourse describes a loan structure where the lender’s only remedy on default is the asset securing the loan. If the property sale does not fully repay the debt, the lender writes off the shortfall. They have no contractual right to pursue the borrowing company’s other assets, and no right to pursue any director or shareholder personally.
True non-recourse is rare in UK commercial mortgages
The phrase gets used loosely. True non-recourse, with zero personal guarantee and no other corporate-asset recourse, is rare on UK commercial mortgages and typically only available on:
- Institutional-scale lending (tickets above 10 to 20 million) to corporate borrowers with strong covenants.
- Specialist commercial mortgage product at conservative LTVs (often 55 to 60%) from a small number of specialist lenders.
- Pension-trustee structures (SIPP, SSAS) where personal guarantees are structurally not permitted.
Almost every other UK commercial mortgage carries either a personal guarantee, a corporate-debenture recourse beyond the property, or both. Borrowers told a loan is “non-recourse” should read the small print: a capped PG is not non-recourse.
Why non-recourse costs more
A non-recourse loan limits the lender’s downside. The lender prices that risk in. Typical pricing premium over an otherwise-identical recourse deal is 50 to 150 basis points, depending on LTV and asset type. The borrower also accepts:
- Lower LTV.
- Tighter cover ratios (ICR 175% rather than 145%, DSCR 1.50x rather than 1.30x).
- More restrictive covenants (rental escrow, capex reserves, lease-renewal triggers).
- More expensive valuation and legal work because the lender’s diligence package is heavier.
When non-recourse is worth paying for
Two cases. First, where the borrowing entity is a SPV holding a single asset and the principal genuinely cannot or will not give personal recourse (high-net-worth structures, family office holding companies, sovereign or institutional capital). Second, where the asset itself is the credit (a long-let prime industrial unit to a covenant tenant) and the principal wants to insulate other holdings.
Limited-recourse and capped-recourse
Most “non-recourse” UK commercial mortgages in practice are limited-recourse: recourse exists but is capped (PG capped at 20% of loan, or recourse limited to specific named assets only). This sits between full recourse and true non-recourse.