Commercial Mortgages

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ABC FinanceCommercial mortgages
Gary Hemming

Author: Gary Hemming CeMAP CeFA CeFA CSP

20+ years experience in commercial mortgages

A commercial mortgage is a type of mortgage loan that is used to purchase or refinance business properties and land.

Read our detailed guide to find out everything you need to know before taking out a commercial mortgage including how much they cost, how much deposit is needed and who the leading commercial mortgage lenders are.

Commercial mortgages explained

This section explains the basics of commercial mortgages including what they are, who can get one and the key benefits.

What is a commercial mortgage?

A commercial mortgage is a type of mortgage loan that is secured against a property that is deemed to be commercial, or non-residential. A commercial mortgage can be used to either purchase or refinance properties, including trading business premises or commercial buy to let (also known as investment) properties. They can be used to fund a wide variety of property types including full commercial, mixed-use properties and even land.

Commercial mortgage lenders tend to take an individual view to assessing the risk of applications, meaning criteria is often more flexible. This allows lenders to consider a wide variety of scenarios without issue, rather than only offering a deal based on limited criteria.

This allows lenders to be flexible and take the whole picture into account, rather than using computerised underwriting. This is relatively unusual as many financial products use computerised scoring.

Who can get a commercial mortgage?

Anybody can get a commercial mortgage, as long as they have a deposit and offer suitable security. Of course, conditions apply and you must go through the application process to be approved.

Whether you’re a property investor or business owner, funding can be offered to most people.

We’re able to offer a commercial mortgage to individuals, sole traders, partnerships, LLPs, Ltd companies and overseas applicants.

What are the key benefits of commercial mortgages?

There are several key benefits to taking out a commercial property mortgage, including:

  • The interest paid is tax-deductible.
  • This type of lending is much more flexible than it was a few years ago due to the rise of challenger banks such as YBS Commercial, Aldermore Bank and Shawbrook Bank.
  • Using this type of mortgage to purchase commercial property could see you benefit from increases in the property value.
  • Investing in business property could produce higher yields than investing in residential property.
  • You can borrow over a long term, making savings compared to short-term finance, such as bridging loans. Most commercial mortgage terms can be extended as long as 25 years.
  • Some lenders allow you to take capital repayment holidays in the early years of an application.

What are the disadvantages?

  • In most cases, they aren’t regulated by the Financial Conduct Authority (FCA).
  • Your property may be repossessed if you fail to keep up repayments on your mortgage.
  • The loan to value (LTV) offered is generally lower than residential mortgages.
  • You will need to pay set up costs .

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What are the key features of a commercial property mortgage?

We work with lenders across the entire market to provide cost savings throughout the commercial mortgage process. As a result, we can offer you the following:

  • A choice between fixed or variable interest rates
  • We can arrange borrowing for almost any property
  • Choose any term from 1-25 years (or up to 30 in some cases)
  • A choice of Interest-only, capital repayment or part and part available We can access the best interest rates, with no broker fees for loans over £100,000

Key product features

Key Features


Up to 80%

Interest rate

From 2.25% over Base Rate

Repayment types

Capital repayment, interest only or part and part


5-30 years

Interest type

Fixed or variable available

Acceptable security

Any commercial or semi-commercial property considered. Land
accepted on a case by case basis


Loans from £25,000 with no maximum loan size

Available to individuals, partnerships, LLPs, Ltd companies, offshore companies, foreign nationals and pension funds

Minimum applicant age 18 years – no maximum age

Available in England, Scotland, Wales and Northern Ireland

Adverse credit accepted (on a case by case basis)

Products with no early repayment charges available

What are the types of commercial mortgages?

Mortgages for commercial property can be split into quite a few distinct types, which are explained below:

Owner-occupied commercial mortgages

An owner-occupied commercial mortgage, also known as a business mortgage is used when a property is being purchased for the buyers own business to trade from.

Commercial investment mortgages

Commercial investment mortgage applications also known as a commercial buy to let mortgage, are used when a commercial property is being let to another business to trade from. Think of this as a buy to let mortgage for non-residential property.

Interest only

Interest only commercial mortgages are a type of commercial mortgage that allows you to pay only the interest each month. This has the advantage of keeping the repayments on your mortgage low, but does result in higher total interest charges over the term of your commercial mortgage. At the end of the mortgage term, an interest only commercial mortgage must either be repaid in full, or refinanced using a commercial remortgage.

Capital repayment

Capital repayment commercial mortgages involve paying both the capital balance and interest each month to gradually repay your commercial mortgage over the loan term. This means higher monthly repayments on your mortgage but gives you the certainty that your property will be mortgage free at the end of the loan term.

Fixed rate

Fixed rate commercial mortgages have an interest rate that stays the same for a set period, usually between 2-5 years. During a fixed rate period, your monthly repayments remain the same each month, regardless of changes in the Bank of England Base Rate. A fixed rate product will benefit you when interest rates rise, but means you won’t benefit from interest rate reductions.

Variable rate

Variable interest rate commercial mortgages do not have a fixed rate, meaning your interest rate, and therefore your monthly repayments can change as interest rates change.

Types of Commercial Mortgage

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Owner Occupied

Commercial Investment

Fixed Rate

Variable Rate



Interest Only

Capital Repayment

How much can I borrow?

Your maximum loan is governed by two distinct lender eligibility criteria points – the loan to value (LTV) of your application, and where you sit in the lender’s affordability rules.

What is the maximum loan to value on a commercial property mortgage?

The maximum loan to value is 80% for certain sectors, usually healthcare or manufacturing. This means that your loan can not exceed 80% of the value of the property. For certain industries, this may be increased or decreased slightly, depending on the health of the sector.

Typically 65% – 70% LTV is realistic for most commercial mortgage application types.

Some lenders base their LTV calculations on a ‘going concern’ value – a combination of both the business and property value.

How are commercial mortgage affordability rules calculated?

For owner-occupied commercial mortgage applications, lenders will look at the trading history of your business. Although all lenders use different calculations, they usually lend based on the EBITDA of the borrower. This is the company’s earnings before interest, tax, depreciation and amortisation.

Once this figure has been established, lenders either insist that the EBITDA is a certain percentage over the annual mortgage payment or lend a maximum loan at a set multiple of EBITDA. On top of analysing EBITDA, lenders will assess your cash flow.

Commercial investment mortgage affordability is usually calculated by setting a percentage over the mortgage payments, much like buy to let mortgages. For example, 145% rental cover, would mean that the rental income must be greater than 1.45 times the proposed commercial mortgage payment.

Costs of a commercial mortgage

The main costs associated with a commercial mortgage is the interest charged, set-up costs for the mortgage and any acquisition costs (for property purchases).

What interest rates are charged on commercial mortgages?

Owner-occupied interest rates usually start at 2.25% over Base Rate, with rates of 2.5-7% common. These loans are the ones where your own business premises are to be used as security for the mortgage.

Commercial investment rates are generally slightly higher, with interest rates usually sitting between 2.8-7.5% over Base Rate.

In both cases, lower interest rates are reserved for the lowest risk commercial mortgage applications. Lenders usually base this on credit history, income, how reliable the income is in the longer term and the quality of the security property.

What are the set-up fees for a commercial mortgage?

The set-up costs for a commercial mortgage are:

Lender arrangement fee -arrangement fees are often charged as a percentage of the loan. Lender arrangement fees range from 1-2% but are usually between 1.5-2%. Although some providers will expect some of the fee to be paid on offer, it is usually possible to add the fee to the loan.

Broker fees – most brokers will charge broker fees for their service. This is often upwards of 1% of the loan amount. We don’t usually charge a broker fee for loans over £100,000, as we’re committed to saving you money throughout the process.

Valuation fees -as with a residential mortgage, a valuer will inspect the property and produce a report for the lender. The fee is usually paid part way through the process. This is before the offer and the cost will vary based on the type, value and location of the property.

Legal fees -most providers will expect you to cover both your own and their legal fees concerning the loan. The cost of legal work is higher than those associated with residential mortgages. The costs charged will vary depending on the loan size, property value and complexity of the transaction. Legal fees are usually quoted on a case-by-case basis.

What are the acquisition cost for commercial property?

The main acquisition costs are Stamp Duty and VAT. Stamp Duty rates for commercial property are the following:

  • 0% of the purchase price on anything up to £150,000
  • 2% of the purchase price on the next £100,000 (the part from £150,001 to £250,000)
  • 5% of the purchase price on the part over £250,000 VAT is also due on some business property purchases.

Where VAT is due, it can often be reclaimed following the purchase and where this is the case, we’re usually able to lend 100% of the VAT due on the property to be used as security in addition to your commercial mortgage.

Commercial mortgage

Where to get a commercial mortgage

The main costs associated with a commercial mortgage is the interest charged, set-up costs for the mortgage and any acquisition costs (for property purchases).

How to get your application approved

Find out how to get your application approved by your commercial mortgage lender quickly.

Should I work with a commercial mortgage broker or work directly with a lender?

A good commercial mortgage broker will manage your application fully, taking the pressure of you. They will compare options from across the market and will be aware of intangible factors, such as current service levels, or appetite for your sector, which is hard to find without their help.

That said, some brokers charge high fees for their service, including, in some cases upfront fees, which can significantly add to your costs. We don’t charge broker fees for mortgages over £100,000.

A good broker will also cross-check your commercial mortgage application before submission to the lender to ensure you have the best chance of approval.

Which lenders are best for commercial mortgages?

Lending on commercial mortgages is offered through three different types of lender – high street banks, challenger banks and specialist commercial mortgage lenders. High street banks tend to offer the lowest rates, but have strict eligibility criteria and often lack flexibility. High street banks tend to be authorised and regulated by the Financial Conduct Authority (FCA).

Challenger banks charge slightly higher rates, but offer a more flexible approach to lending, often with higher loan to values and more relaxed criteria.

Specialist commercial lenders tend to offer the most relaxed lending criteria and often accept adverse credit and projection led applications. This comes at a cost of higher interest rates.

Of course, each business mortgage is subject to status and you must keep up repayments or your property may be repossessed. As such, it’s important that your loan is affordable, so only borrow what you can afford.

What documents are required when applying for a commercial property mortgage?

The documents needed to apply for a commercial mortgage are:

  • A fully completed application form
  • A detailed assets and liability summary
  • 3-6 months statements for your business bank accounts (for owner-occupied applications)
  • 2 years trading accounts (for owner-occupied applications)
  • A copy of leases and tenancy agreements (for commercial buy to let applications)

Depending on the application, your personal history and your deposit level, more information may be required. Get in touch if you’d like to know what would be needed to during the application process based on your circumstances.

How can you complete a commercial mortgage application quickly?

Staying at the front of the lenders mind is paramount to keeping your application moving forward in a positive way.

Ensuring that requests are complied with quickly can be a major advantage and give the lender a better impression of you as a borrower. This can prove to be key should your commercial mortgage application run into trouble later down the line.

Frequently Asked Questions

Some lenders will allow you to take out your commercial mortgage loan on an interest-only basis. It is recommended that you consider this carefully or enquire above to speak about this with an expert.

Where appropriate, most commercial mortgage lenders will allow you to repay unsecured debts when remortgaging your property. When repaying short-term finance using a commercial mortgage, it is recommended that you consider the situation carefully as it may save you money on a monthly basis, but could end up costing more in the long run. If the additional borrowing leads you to exceed the lenders maximum LTV rules, additional security may be required.

Bridging loans are a form of short-term finance, whereas mortgages are long term. Although they may take a little longer to complete, you will experience big cost savings by taking out a commercial property mortgage rather than short-term finance. For more information, try out our commercial mortgage repayment calculator or read our guides.

The alternatives to a commercial mortgage are:

  • Bridging loans – Bridging loans can be used to purchase or refinance a property faster than would be possible using a commercial mortgage, albeit at a higher interest rate.
  • Residential mortgages – When buying a new home that you will run a business from, a residential mortgage may allow you to raise the funds at a lower interest rate than would be available using a commercial mortgage.
  • Secured business loans – When looking to raise money for your business by securing a loan against your business premises, a secured business loan is a strong option. They can usually be arranged quicker than a commercial mortgage and could allow you to borrow up to 70% of your business property value.

Keep reading:

Commercial mortgage rates
Commercial mortgage rates
Commercial mortgage calculator
Commercial mortgage calculator

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