Commercial Mortgage Rates & Fees

Fixed and variable rates explained

Commercial mortgage rates can be either fixed or variable.

Fixed rates – fixed rate loans are available for anything from two years right up to the full term of the loan. In the current market, there is often little difference between the initial rate charged on fixed or variable loans.

Some lenders price each fixed rate loan individually, meaning an instant quote is not always possible. Others, such as Shawbrook Bank, Allica Bank and InterBay Commercial, have set fixed rates.

Variable rates – variable rates can be broken down into 2 types. Bank of England Base Rate trackers that change in line with Base Rate and lender variable rates that move as decided by the lenders own variable rate.

The Bank of England Base Rate is the most commonly used interest rate in the UK. It is reviewed monthly and is controlled by the Monetary Policy Committee.

Can a broker help me get a better rate?

Yes, using a reputable commercial mortgage broker could see you get a better deal on your mortgage.

Some commercial mortgage lenders can only be accessed through a broker, meaning you can’t compare offers from across the market without one.

To avoid adding unnecessary cost to your transaction, look for a fee free commercial mortgage broker, like ABC Finance.

Should you fix your mortgage rate?

This is an individual decision, and it’s an important one. Variable business mortgage rates can go up or down, whereas fixed rates remain static.

Fixed rates are generally taken for between 2-5 years and in the current climate, where rates are dropping, could see you locked in to a higher rate for longer.

That said, fixing your payments does give you security that your monthly payments won’t go up during the early years of your borrowing.

Your individual risk appetite will dictate whether this is more valuable to you than the opportunity to see your monthly payments drop should rates go down.

The best commercial investment deals are at 60% loan to value and below

Commercial investment mortgage products are usually tiered based on the loan to value required.

Lower rates tend to be offered for loans below 60% LTV. With some lenders, the lowest rates are reserved for applications below 50% LTV.

How can I get a lower commercial mortgage rate?

As mentioned above, reducing your loan to value is the best way to reduce the rate that you pay.

Beyond that, settling any adverse credit that you’ve suffered will help you secure a better deal.

Finally, some lenders price their applications to risk, so presenting yourself in the best possible light will pay dividends. Putting a strong application pack together can be a very profitable use of your time.

Why are the rates charged higher than those on residential mortgages?

The difference in rate comes down to the increased risk of lending on commercial property rather than residential. In much the same way that a buy to let mortgage rate is higher than residential, there is a perception that your home is the last thing you would be willing to lose.

As such, your residential mortgage is the last thing you would fail to pay, meaning it’s seen as the lowest risk market for lenders.

Commercial mortgages, whether owner-occupied or investment, tend to be seen as lower down on your list of priorities, and as such are a higher risk.

In addition to this, commercial property is also less liquid than residential property, so in the event of repossession, the lender may find it trickier to sell at full market value.

Can commercial mortgage interest be offset against tax?

Yes, the interest charged can be offset against tax, whether the property is used for the running of your business or let out as an investment property. This is an advantage over buy to let property investment, which only allows tax deductible interest if your property is owned through an SPV limited company.