What is a commercial mortgage?
A commercial mortgage is a loan secured against property that is used for business purposes rather than as your home. It lets a business or investor buy, refinance, or release equity from premises such as offices, shops, warehouses, industrial units, or mixed-use buildings. Because the borrower is a business and the security is commercial property, most commercial mortgages sit outside the scope of standard consumer mortgage regulation.
In short, if you want to buy the premises your company trades from, purchase a commercial building as an investment, or remortgage a property let to business tenants, a commercial mortgage is the facility you need.
How does a commercial mortgage work?
A commercial mortgage works much like a residential one in principle: you put down a deposit, borrow the balance, and repay it over an agreed term with interest. The key differences lie in how the loan is assessed. Instead of looking at your personal salary, the lender focuses on the strength of the business, its trading history, and the ability of the property or business to generate enough income to cover the repayments.
Loans can be arranged on a capital repayment basis, where you pay down the balance over the term, or on an interest-only basis, where you service the interest and repay the capital at the end from sale or refinance. Rates may be fixed for a period or track a reference rate such as the Bank of England base rate.
Who uses commercial mortgages?
Commercial mortgages are used by a wide range of borrowers across the UK:
- Business owners buying their trading premises instead of renting
- Property investors purchasing commercial units to let to business tenants
- Landlords buying semi-commercial or mixed-use property, such as a shop with a flat above
- Developers holding completed commercial schemes for the long term
- Companies releasing equity from property they already own to fund expansion
Owner-occupied vs investment commercial mortgages
There are two broad categories. An owner-occupied commercial mortgage is for a business buying premises it will trade from. An investment commercial mortgage is for a property let to third-party tenants, where the rent covers the loan. The assessment differs: owner-occupied deals hinge on business affordability, while investment deals hinge on rental cover. We explore the distinction in detail in our guide to owner-occupied vs investment commercial mortgages.
How much can you borrow?
Lenders express borrowing as a loan-to-value (LTV) ratio. As a general guide in the UK market, expect to borrow up to around 70 to 75 percent of the property value on an owner-occupied deal, and up to around 65 to 75 percent on an investment property, depending on the asset and the covenant. That means a deposit of roughly 25 to 35 percent. Semi-commercial and specialist assets may attract lower LTVs. Our commercial mortgage deposit and LTV guide covers the numbers in full.
What does a commercial mortgage cost?
Costs vary by lender, asset, and borrower strength. As a broad guide in the current market:
- Interest rate: a margin above base rate or a fixed rate, commonly in the region of 6 to 9 percent per annum
- Arrangement fee: typically 1 to 2 percent of the loan
- Valuation: a few hundred to several thousand pounds depending on the property
- Legal fees: your own and often the lender's costs
- Broker or platform fee: traditionally 1 to 2 percent of the loan
How to get a commercial mortgage
The process involves packaging your case, presenting it to lenders whose criteria fit, valuation, legal work, and completion. Preparing a clear, lender-ready case up front is the single biggest factor in getting a fast, competitive offer. Platforms like commercial mortgages through Assesr build a lender-ready credit paper in around 60 seconds and match your deal to specialist commercial lenders, at a quarter of the typical broker fee. For a step-by-step walkthrough, see our guide on how to get a commercial mortgage.
Frequently asked questions
What is the difference between a commercial mortgage and a residential mortgage?
A commercial mortgage is secured against property used for business purposes and is assessed on the affordability of the business or rental income, not personal salary. Terms, rates, and deposit requirements differ, and most commercial mortgages are unregulated because the borrower is a business rather than a consumer.
Can I get a commercial mortgage as a limited company?
Yes. Many commercial mortgages are taken out through limited companies, special purpose vehicles, LLPs, or partnerships. Lenders will assess the trading history and financials of the entity and may require personal guarantees from the directors behind it.
How long does a commercial mortgage last?
Terms typically range from 5 to 25 years, though some lenders offer up to 30. Owner-occupied mortgages often have longer terms than investment facilities, which are frequently structured over shorter periods with a refinance or sale at the end.