What Is a Commercial Mortgage?
A commercial mortgage is a loan secured against a non-residential property, used either to buy premises your own business will trade from, or to purchase a property you’ll let out to a business tenant. Unlike a residential mortgage, it’s assessed against business performance or rental income rather than personal salary, typically requires a 25-40% deposit, and runs over 10-25 years at rates currently ranging from around 5.5% to 9.5%.
How a Commercial Mortgage Actually Works
A lender advances funds secured against the property itself, registered as a legal charge, exactly as with a residential mortgage. What genuinely differs is the assessment: rather than checking your payslips, a lender wants to understand either your business’s own trading performance, if you’ll occupy the property yourself, or the property’s rental income and tenant strength, if you’re buying it purely as an investment. This single distinction – occupier versus investor – shapes almost every other decision in a commercial mortgage application.
Occupier vs Investment: The Fork That Decides Everything
Our Occupier Mortgages page covers buying premises to trade from yourself, assessed against your business accounts and cash flow. Our Investment Mortgages page covers buying to let to a separate business tenant, assessed instead against the property’s rental income and an Interest Coverage Ratio test. The exact same building can be financed on genuinely different terms depending purely on which of these two categories applies to you.
The 2026 Refinancing Wave: Why Market Timing Genuinely Matters
Around £33 billion of UK commercial property debt matures in 2026 alone, representing roughly 19% of the entire UK commercial real estate debt market according to research from Bayes Business School at City St George’s, University of London. This genuinely changes lender behaviour across the board – with such a substantial volume of existing debt needing refinancing simultaneously, lenders are scrutinising every application more carefully, while also competing more actively for stable, well-evidenced refinancing deals specifically. If your own facility is approaching maturity, it’s worth understanding you’re one of a genuinely large cohort facing this same market timing, worth reviewing your options well ahead of your actual deadline rather than waiting until the last few months.
Commercial Mortgage Rates in the UK
Commercial mortgage rates in 2026 typically range from 5.5% to 9.5%, with the strongest owner-occupied cases at low LTV accessing rates from around 4.5-5%, and specialist or higher-risk cases running toward the top of the range or above it. Unlike residential mortgages, there’s no standardised rate card you can compare on a price comparison site – every case is individually underwritten against the specific property, tenant, and borrower.
Fixed vs Variable Rates
Most lenders offer fixed rates for 2, 3, 5, or occasionally 10 years, giving payment certainty at a small premium over the equivalent variable rate. Variable rates track the Bank of England base rate, currently 3.75%, plus a lender margin commonly 2-5.5 percentage points, and can move up or down through your term. A fixed rate suits businesses with tight cash flow forecasts who value certainty; a variable rate suits those with stronger reserves who can absorb rate movement in exchange for a typically lower starting rate.
What Genuinely Moves Your Rate
Five factors do most of the work in determining your actual rate: your loan-to-value, the property type and condition, your business’s trading history and financials, the strength of any tenant’s covenant on an investment purchase, and the overall size of the loan, since larger facilities often price more competitively given underwriting costs are spread across a bigger sum.
Loan-to-Value and Deposit Requirements
Most commercial mortgages require a deposit of 25-40%, meaningfully higher than residential lending, with loan-to-value typically capped at 65-75% depending on the lender, sector, and borrower profile.
Why 90% and 100% LTV Searches Miss the Real Market
It’s worth addressing this directly, since it’s a genuinely common search: standard commercial mortgages simply don’t reach 90% or 100% LTV in the way some searches assume. The realistic ceiling for most purchases is 75-80%, with owner-occupied cases at the upper end where strong debt service cover is evidenced. A small number of genuine exceptions exist – professional practices such as dentists and doctors can sometimes access up to 100% given how reliably regulated income is treated, and certain branded hotel operators on larger loans can occasionally reach similar territory – but these are narrow exceptions, not the standard market.
How Much Deposit You Actually Need
Standard commercial property, offices, warehouses, and semi-commercial premises typically need a 25-30% deposit. Retail premises commonly sit at 30-35%. Specialist properties like hotels and care homes often require 35-50%. Medical and professional practices can sometimes access considerably lower deposits given the sector’s regulated, reliable income profile.
Ways to Reduce Your Deposit Requirement
Cross-collateralisation, using equity in another property you already own as additional security, can reduce the cash deposit needed. Some structures also allow a portion of the deposit to be met through mezzanine finance, a secondary facility sitting behind your main mortgage at a higher rate, worth discussing with your broker if your own cash reserves don’t quite stretch to a lender’s standard requirement.
Interest-Only vs Capital Repayment
Commercial mortgages can be arranged on either basis. Capital repayment reduces your outstanding balance with every payment, building genuine equity over the term. Interest-only keeps monthly payments lower, with the full capital still owed at the end, commonly used on investment purchases where the eventual sale or refinance of the property serves as the repayment strategy.
Which Structure Genuinely Suits You
Owner-occupiers generally lean toward capital repayment, since the business benefits from owning the asset outright by the time the mortgage ends. Investors more commonly choose interest-only, maximising monthly cash flow and rental yield, provided a credible exit – sale, refinance, or another confirmed source of funds – is genuinely in place for the capital.
Calculating What You Can Borrow
Lenders don’t simply apply a flat income multiple the way residential mortgages do – they use coverage ratios specific to whether you’re occupying or investing, typically stress-tested at a notional rate 1-2 percentage points above your actual pay rate.
Owner-Occupiers: The Debt Service Coverage Ratio
For an owner-occupied purchase, lenders typically want your business’s net profit, or EBITDA, to cover the annual mortgage payment by 1.3 to 1.5 times, sometimes lower for well-established, lower-risk sectors. On a £420,000 mortgage at 6.8% over 15 years, the annual payment comes to roughly £44,600 – meaning your business would need to demonstrate net profit of at least £58,000 to £66,900 to comfortably clear this coverage requirement.
Investors: The Interest Coverage Ratio
For an investment purchase, lenders test whether rental income covers the mortgage interest by 125-145%, calculated at a stressed rate above your actual pay rate, not the rate you’re genuinely being charged. On a £500,000 loan at a stressed rate of 7%, annual interest comes to £35,000 – requiring rental income of at least £43,750 to £50,750 depending on the lender’s specific threshold.
Why Term Length Is Often the Better Lever Than Rate
It’s worth knowing that where a coverage test comes in marginal, extending your loan term – from 15 to 20 years, for example – often clears the requirement more effectively than a small rate concession would, since a longer term genuinely reduces the annual payment being tested against your income.
A Full Worked Example: Owner-Occupier
Consider a Manchester-based business buying its £600,000 premises with a 30% deposit of £180,000, borrowing £420,000 over 15 years. At a fixed rate of 6.8% for five years, the monthly repayment is approximately £3,720, with total interest over the five-year fixed period around £91,200. The same loan on a variable rate starting at 6% – base rate plus a 1.5% margin – would cost roughly £3,545 a month, saving around £11,200 over five years if rates hold steady, though this reverses if the base rate rises by a percentage point or more during the term.
A Full Worked Example: Investment Purchase
Consider an investor buying a £400,000 let commercial unit at 70% LTV, borrowing £280,000. At a stressed rate of 7% and a 125% ICR requirement, annual interest of £19,600 needs rental income of at least £24,500 – on a unit genuinely let at £26,000 a year, this comfortably clears the threshold. At the higher 145% ICR some lenders apply, the same rent would need to reach £28,420, potentially requiring a smaller loan or a lower LTV to make the numbers work.
The Full Cost, Not Just the Rate
The headline rate is only part of what a commercial mortgage genuinely costs. It’s worth budgeting for the complete fee stack before comparing any two offers.
Arrangement Fees
Expect an arrangement fee of 1-2% of the loan amount. On a £500,000 mortgage, this represents £5,000-£10,000, and many lenders allow it to be added to the loan rather than paid upfront – though this means paying interest on the fee itself for the remainder of the term.
Valuation and Legal Costs
Commercial valuations typically run £800-£8,000 depending on property value and complexity, with specialist properties toward the top of this range given the more involved assessment required. Legal fees commonly run £2,000-£12,000, covering both your own solicitor and the lender’s, since commercial transactions require separate legal representation on each side.
Early Repayment Charges and Redemption Fees
Most fixed-rate commercial mortgages carry an early repayment charge if you settle or remortgage before the fixed term ends, sometimes running to several percent of the outstanding balance in the early years. Unlike residential mortgages, commercial lending has no standard penalty-free overpayment allowance – our piece on commercial mortgage redemption and overpayment covers exactly what to check in your specific agreement before making a significant overpayment or planning to refinance early.
Who Lends on Commercial Property
Commercial lenders broadly split into three tiers, and understanding which genuinely suits your case matters as much as the rate itself.
High Street Banks
Established banks still write the majority of low-risk, owner-occupied deals, typically pricing around 2.5 percentage points over the Bank of England base rate for the strongest applicants. This tier offers the most competitive headline rates but applies the strictest criteria – three years of certified accounts, a recognisable property type, and an appetite for a relationship-led process rather than a fast online decision. High street underwriting also typically takes longer, commonly 8-12 weeks against the specialist tier’s 4-6.
Challenger Banks
Challenger and mid-tier lenders now collectively account for roughly a third of new UK commercial mortgage lending, up from around a fifth just five years ago, as high street market share has slipped from close to 80% to around 67% over the same period – with private debt funds and alternative lenders together now covering as much as 28% of the wider commercial refinancing market specifically. This tier generally prices somewhat higher than the high street but offers considerably more flexible criteria, faster turnaround, and a genuine willingness to consider more recent credit issues or less conventional trading histories.
Specialist Lenders
Specialist commercial lenders exist specifically for cases the high street and challengers won’t touch – meaningful adverse credit, unusual property, complex ownership structures, or genuinely tight timescales. Pricing reflects this additional risk, but for many borrowers, a specialist lender is the difference between securing finance at all and not being able to proceed.
Why This Shift Genuinely Matters to Your Application
Given how much the market has moved toward challenger and specialist lending in recent years, it’s worth having your case reviewed against this wider panel rather than approaching your existing bank alone, since the lender genuinely best suited to your specific profile may not be one you’d think to approach directly.
Green and EPC-Linked Commercial Mortgages
Several major lenders now offer a genuine rate discount, commonly 10-30 basis points, for buildings rated EPC B or above, or for borrowers investing in solar, heat pumps, or insulation as part of their purchase or refurbishment. This kind of green commercial mortgage typically requires EPC B or above, or a genuine commitment to qualifying green improvements, and the high street collectively has committed well over £100 billion to climate and sustainable finance to date, with considerably more pledged by 2030, reflecting how seriously this is now being pursued across the market.
Why This Matters Beyond the Immediate Discount
With EPC requirements for commercial property continuing to tighten, it’s worth viewing a green mortgage discount as part of a longer-term strategy rather than a one-off saving – a property already meeting the higher EPC bands genuinely future-proofs both your financing costs and your building’s letting or resale prospects.
Commercial vs Residential Mortgages: The Genuine Differences
Beyond the headline rate and deposit gap, commercial and residential mortgages differ in several ways worth understanding clearly. Commercial lending receives limited FCA protection compared with the heavily regulated residential market, since business-to-business transactions assume a genuine degree of commercial sophistication. There’s no standardised affordability formula – each lender applies its own individual criteria, weighing the same application very differently. Application timelines also run longer, commonly 10-20 weeks from enquiry to completion, compared with 6-12 weeks for a typical residential purchase, reflecting the more detailed underwriting a commercial case genuinely requires.
Which Type of Commercial Mortgage Applies to You
Commercial finance isn’t a single product – it splits into genuinely distinct categories depending on your property and circumstances.
Mixed-Use and Semi-Commercial Property
Our Semi Commercial Mortgages page covers buildings combining commercial and residential space, such as a shop with flats above, assessed on genuinely different terms to a purely commercial property.
Commercial Buy-to-Let
Our Commercial Buy to Let Mortgages page covers letting non-residential property to a business tenant as a pure investment, genuinely distinct from residential buy-to-let in both assessment and typical yield.
Growing a Portfolio
Our Portfolio Mortgages page covers consolidating multiple commercial properties under a single facility, often achieving a more competitive blended rate than financing each one separately.
Sector-Specific Property Types
Our Office Mortgages, Retail & Shop Mortgages, and Industrial & Warehouse Mortgages pages cover the three largest mainstream commercial categories. Our Pub & Restaurant Mortgages and Petrol Station Mortgages pages cover trading businesses valued on going-concern performance rather than a standard comparable-sales approach. Our Farm & Agricultural, Franchise, Schools & Nurseries, and Storage Unit Mortgages pages cover further specialist sectors, each assessed on genuinely different criteria.
Adverse Credit
Our Bad Credit Mortgages page covers accessing commercial finance where credit history complicates a standard application – a less-than-perfect record doesn’t automatically rule out lending, though it does narrow your realistic lender pool.
Refinancing an Existing Commercial Mortgage
Our Commercial Remortgage page covers when refinancing genuinely improves your position, particularly relevant given how large the current refinancing wave genuinely is.
Why Applications Get Declined, and How to Avoid It
A genuine number of commercial mortgage applications are declined for avoidable reasons, worth understanding clearly before you apply.
Approaching the Wrong Lender First
Each lender has its own sector appetite and risk tolerance, and an application that’s a straightforward yes at one bank can be an automatic decline at another, purely based on their current focus rather than the genuine quality of your case. This is exactly why lender selection, not just presenting a strong application, matters so much from the outset.
Incomplete or Poorly Presented Financials
Missing accounts, unexplained gaps in trading history, or financials presented without genuine context are among the most common, avoidable causes of delay or decline. A clear narrative explaining any unusual figures – a one-off cost, a temporarily quiet trading period – is worth preparing before you submit anything.
Marginal Coverage Ratios Without a Mitigating Factor
A coverage ratio that falls just short of a lender’s threshold is often salvageable through a longer term, a slightly lower loan amount, or additional security, rather than being an automatic decline – worth discussing these levers with your broker before assuming a marginal case is genuinely unfundable.
Property or Sector Outside a Lender’s Current Appetite
Lender appetite for specific sectors and property types genuinely shifts over time, sometimes month to month, in response to their own risk experience. A property type comfortably financed a year ago can face considerably more caution today, purely due to a lender’s own recent portfolio performance, not anything about your specific application.
The Application Process, Step by Step
Most commercial mortgage applications follow a broadly similar sequence, typically taking 10-20 weeks from initial enquiry to completion.
Preparation
Gather at least two to three years of business accounts, recent bank statements, and a clear picture of the property and its intended use. Having this genuinely organised before you approach a lender avoids the back-and-forth that commonly adds weeks to an application.
Decision in Principle
Most lenders will provide an indicative Decision in Principle, a non-binding outline of likely terms, before you commit to a full application – worth securing early, particularly for a time-sensitive purchase.
Full Underwriting
Once you proceed, expect a full property valuation, credit checks on the business and its directors, and manual underwriting review of your complete financial position. This stage typically takes four to eight weeks depending on case complexity.
Legal Work and Completion
Both borrower and lender appoint separate solicitors to handle title checks, planning verification, and legal documentation, culminating in fund transfer and Land Registry registration on completion day.
Using a Commercial Mortgage Calculator
An online commercial mortgage calculator can give you a genuinely useful indicative monthly payment based on loan amount, rate, and term, but it’s worth treating any such figure as a starting point rather than an offer. Because commercial lending is individually underwritten, a calculator can’t factor in your specific coverage ratio requirement, your business’s trading history, or the property’s own risk profile – all of which genuinely move the final number a lender actually offers you. It’s worth running your numbers past a broker alongside any calculator estimate, particularly before making an offer on a specific property.
Why a Whole-of-Market Broker Genuinely Matters Here
Commercial mortgage rates aren’t standardised the way residential rates are, and a meaningful majority of successful applications now go through an intermediary rather than direct to a lender. Specialist brokers regularly access pricing 0.3-1.2% below advertised public rates, and given how much lender appetite genuinely varies by sector, property type, and borrower profile, working with a broker who covers the whole market – wherever in the UK you and your property happen to be based – matters more here than for almost any other form of lending.
Getting the Right Lender for Your Circumstances
Given how much genuinely depends on your specific property, trading history, and deposit position, it’s worth having a proper conversation before assuming either the best or worst-case rate automatically applies to you. Get in touch with details of your business or investment plans, and we’ll help you find a lender genuinely suited to your commercial mortgage needs.
Frequently Asked Questions
What is a commercial mortgage?
A loan secured against non-residential property, used to buy premises to trade from or to let to a business tenant, assessed against business performance or rental income rather than personal salary.
What deposit do I need for a commercial mortgage?
Typically 25-40%, meaningfully higher than residential lending, though the exact figure depends on property type, sector, and whether you’re an occupier or investor.
Can I get a 90% or 100% LTV commercial mortgage?
Rarely – the realistic ceiling for most purchases is 75-80%, with 90-100% limited to narrow exceptions like certain medical practices or branded hotel operators on larger loans.
Are commercial mortgages interest-only or repayment?
Both structures are available – capital repayment builds equity over the term, while interest-only keeps payments lower with capital repaid via eventual sale or refinance, commonly used for investment purchases.
How long does a commercial mortgage take to arrange?
Typically 10-20 weeks from initial enquiry to completion, reflecting the more detailed underwriting commercial lending genuinely requires compared with residential mortgages.
Why are commercial mortgage rates higher than residential rates?
Commercial property carries genuinely higher risk for lenders – business failure rates exceed personal insolvency rates, and commercial assets can be harder to sell quickly if a lender needs to recover funds.
Can I get a commercial mortgage with bad credit?
Often yes through a specialist lender – adverse credit doesn’t automatically rule out finance, though it narrows your realistic lender pool and typically affects your rate.
Do high street banks or specialist lenders complete faster?
Specialist and challenger lenders are often faster, commonly 4-6 weeks underwriting versus 8-12 weeks at the high street, though high street rates are typically more competitive for straightforward, strong applications.
Can I get a discount for an energy-efficient commercial property?
Yes – several major lenders offer 10-30 basis points off for buildings rated EPC B or above, or for genuine green improvement works, worth factoring into your longer-term financing strategy.
Can I use a commercial mortgage calculator to know exactly what I’ll be offered?
Not precisely – a calculator gives a useful indicative figure, but commercial lending is individually underwritten, so your specific coverage ratio and trading history will genuinely move the final number.
Why do so many commercial mortgage applications get declined unnecessarily?
Most common causes are genuinely avoidable – approaching the wrong lender for your sector, incomplete or poorly presented financials, or a marginal coverage ratio with no mitigating factor discussed upfront.
Is 2026 a particularly significant year for commercial mortgage refinancing?
Yes – around £33 billion of UK commercial property debt matures in 2026 alone, roughly 19% of the entire market, meaning lenders are both more selective and more competitive for well-evidenced refinancing deals.
Should I use a broker for a commercial mortgage?
Genuinely worth it – rates aren’t standardised across the market, and a whole-of-market broker can access pricing meaningfully below advertised public rates, wherever in the UK you’re based.
Get in touch with details of your circumstances, and we’ll help you find a lender genuinely suited to your commercial mortgage needs.
