What is a commercial mortgage?
A commercial mortgage is a loan secured against a non-residential property. This includes offices, retail units, warehouses, factories, pubs, restaurants, care homes, and land. It can also cover mixed-use properties where part of the building is used for business and part is residential, such as a flat above a shop.
Commercial mortgages are available to limited companies, sole traders, partnerships, LLPs, and sometimes individuals buying commercial property as an investment. The structure of the borrowing depends on who is buying and for what purpose.
Unlike residential mortgages, commercial lending is not regulated by the FCA in most cases. This means there are fewer standardised protections, which makes independent broker advice especially important to ensure you understand the terms and obligations. If you are also considering residential investment, our buy-to-let mortgage guide covers the key differences.
A commercial mortgage is a loan secured against a non-residential property. This includes offices, retail units, warehouses, factories, pubs, restaurants, care homes, and land. It can also cover mixed-use properties where part of the building is used for business and part is residential, such as a flat above a shop.
Owner-occupied commercial mortgages — where you are buying premises to trade from rather than renting — are one of the most common use cases, giving business owners long-term security and a stake in an appreciating asset instead of paying rent to a landlord.
Commercial mortgages are available to limited companies, sole traders, partnerships, LLPs, and sometimes individuals buying commercial property as an investment. The structure of the borrowing depends on who is buying and for what purpose.
Unlike residential mortgages, commercial lending is not regulated by the FCA in most cases. This means there are fewer standardised protections, which makes independent broker advice especially important to ensure you understand the terms and obligations. If you are also considering residential investment, our buy-to-let mortgage guide covers the key differences.
Commercial vs residential mortgages at a glance
| Commercial | Residential |
|---|---|
| Deposit: 25–40% | Deposit: 5–20% |
| LTV cap: 60–75% | LTV cap: up to 95% |
| Interest rates: 7–11% typical | Interest rates: 3–5% typical |
| Processing time: 6–12 weeks | Processing time: 4–6 weeks |
| Mostly unregulated by the FCA | FCA regulated |
| Assessed on business income or rental yield | Assessed on personal salary and affordability |
Deposit requirements and loan-to-value ratios
Commercial mortgages typically require a deposit of 25–40% of the property’s value, though some lenders may accept less for strong applications. The loan-to-value ratio is usually capped at 60–75%, compared to up to 95% for residential mortgages.
The deposit required depends on the property type, the strength of the business or rental income, the borrower’s track record, and the lender’s appetite for that particular sector. Specialist property types such as pubs, hotels, or care homes may require higher deposits.
Key numbers at a glance
How much deposit do I need for a commercial mortgage?
Most commercial lenders expect a deposit of 25–40% of the property value, with 30% a common middle ground for standard office, retail, and industrial premises. The loan-to-value (LTV) ratio is the percentage of the property value you are borrowing — so a £375,000 loan on a £500,000 property is 75% LTV.
The exact figure depends on several factors. Things that push the deposit higher include specialist property types (pubs, hotels, care homes, petrol stations), limited trading history, weaker rental cover, or a property in a secondary location. Things that can reduce the deposit include a strong multi-year trading record, blue-chip tenants on long leases, a large personal asset base, or additional security offered against the loan.
As worked examples: a limited company buying a £600,000 retail unit to let out would typically need £150,000–£180,000 (25–30%). A first-time hotel buyer might need £200,000–£240,000 on the same value (35–40%). An established restaurant group refinancing could secure closer to 75% LTV on the strength of their accounts.
Commercial mortgages typically require a deposit of 25–40% of the property’s value, though some lenders may accept less for strong applications. The loan-to-value (LTV) ratio is the percentage of the property value you are borrowing — so a £375,000 loan on a £500,000 property is 75% LTV. Commercial lenders usually cap LTV at 60–75%, compared with up to 95% for residential mortgages.
The deposit required depends on the property type, the strength of the business or rental income, the borrower’s track record, and the lender’s appetite for that particular sector. Specialist property types such as pubs, hotels, or care homes may require higher deposits.
How lenders assess commercial mortgage applications
Lenders look at two main factors: the income the property generates (or the business trading from it) and the borrower’s personal financial position. For investment properties, the rental yield must typically cover 125–150% of the mortgage payments, similar to the criteria used for buy-to-let mortgages. For owner-occupied premises, the business must demonstrate sufficient turnover and profitability.
You will need to provide business accounts (usually two to three years), a business plan, cash flow projections, details of existing tenancies or lease agreements, and personal financial information. The more comprehensive your documentation, the smoother the process will be.
Commercial mortgage applications take longer to process than residential ones, often six to twelve weeks. Having your documentation ready and working with a broker who knows the lender’s requirements can speed things up considerably.
Lenders look at two main factors: the income the property generates (or the business trading from it) and the borrower’s personal financial position. For investment properties, the rental yield must typically cover 125–150% of the mortgage payments, similar to the criteria used for buy-to-let mortgages. For owner-occupied premises, the business must demonstrate sufficient turnover and profitability.
Commercial mortgage applications take longer to process than residential ones, often six to twelve weeks. Having your documentation ready and working with a broker who knows the lender’s requirements can speed things up considerably.
Application process: step-by-step
- 01
Initial broker consultation
Discuss your goals, the property, and your financial position so the broker can shortlist suitable lenders and indicate likely terms.
- 02
Documentation gathering
Pull together business accounts, management figures, bank statements, ID, and property or tenancy information ready for submission.
- 03
Decision in principle
The chosen lender issues an indicative agreement confirming they are willing to lend in principle, subject to valuation and full underwriting.
- 04
Property valuation
A RICS-qualified commercial surveyor inspects the property to confirm its market value and, where relevant, rental potential.
- 05
Lender underwriting
The underwriter reviews the full case — accounts, projections, valuation, credit checks — and may come back with questions or requests for more information.
- 06
Formal mortgage offer
Once underwriting is complete, the lender issues a formal offer setting out the rate, term, fees, and any conditions.
- 07
Legal and conveyancing
Solicitors on both sides handle searches, contract review, lease checks, and transfer of funds between buyer, seller, and lender.
- 08
Completion and drawdown
Funds are released, the property transfers, and the mortgage officially begins with the first payment typically due the following month.
How long does commercial mortgage approval take?
Most commercial mortgage applications complete within 6–12 weeks from first enquiry to drawdown, though complex cases can run longer. The timeline below is typical for a straightforward application with a responsive borrower.
Decision in principle: 1–2 weeks while the lender reviews your initial figures. Valuation: 1–2 weeks to instruct a surveyor, carry out the inspection, and receive the report. Underwriting: 2–4 weeks for full credit review, additional questions, and sign-off. Formal offer and legals: 2–4 weeks for the offer to be issued, searches to complete, and funds to be drawn down.
Having your documentation pack ready before you apply is the single biggest thing you can do to compress the timeline. Cases where accounts, bank statements, and property details are provided promptly often complete several weeks faster than those where information trickles through.
Documentation you will typically need
Business and financial records
- Two to three years of business accounts
- Up-to-date management accounts
- Cash flow projections and a business plan
- Bank statements (usually the last six months)
Property and tenancy details
- Details of existing tenancies or lease agreements
- Property valuation or commercial survey
- Proof of planning permission where relevant
Personal information
- ID and proof of address for all directors or applicants
- Personal bank statements
- Details of other assets and liabilities
Interest rates and fees
Commercial mortgage rates are higher than residential rates, typically ranging from 2–6% above the Bank of England base rate, depending on the property type, LTV, and borrower’s profile. Rates can be fixed or variable, with fix periods usually ranging from two to five years.
Arrangement fees are common and typically range from 1–2% of the loan amount. There may also be valuation fees, legal fees, and in some cases, exit fees. Make sure you understand the total cost of the mortgage, not just the interest rate, before committing.
Understanding commercial mortgage rates
Commercial rates are typically 2–6% higher than residential rates because lenders view commercial lending as higher risk. Rates can be fixed or variable, with fix periods usually ranging from two to five years.
Here is what that means in practice: if the Bank of England base rate is 5%, commercial mortgages typically sit in the 7–11% range. On a £500,000 mortgage at 8%, you would pay roughly £40,000 a year in interest. A 0.5% rate difference can save around £30,000 over a 20-year term — which is why comparing offers carefully really matters.
Fixed vs variable rates
| Fixed rate (2–5 years) | Variable rate |
|---|---|
| Rate locked in for the full fix period | Rate moves with the Bank of England base rate |
| Monthly payments stay the same | Monthly payments can fluctuate |
| Best if you want payment certainty | Best if you have flexibility in cash flow |
| Best if you expect rates to rise | Best if you expect rates to fall |
| Usually 0.5–1% higher than variable | Typically lower starting rate than fixed |
Arrangement and additional fees
Common fees to budget for
- Arrangement fee: 1–2% of the loan amount (£5,000–£10,000 on a £500K loan)
- Valuation fee: £500–£2,000, depending on property complexity
- Legal fees: £800–£2,000 for conveyancing and documentation
- Survey or structural report: £1,000–£3,000, optional but recommended
- Exit fees: 0.5–3% of remaining balance if paid off early (often waived after the fixed term)
Real-world total cost example
Cost comparison: £500K over 20 years at different rates
These figures are illustrative and based on standard capital and interest amortisation over a 20-year term on a £500,000 loan. Your actual cost will vary with fees, any rate changes after a fixed period, overpayments, and the specific product terms. The takeaway is that even a 1% rate difference compounds into roughly £60,000–£65,000 over the full term.
How to compare commercial mortgage offers
Don’t just compare the headline rate. Look at: (1) the interest rate and whether it’s fixed or variable, (2) all fees — arrangement, valuation, legal, and exit, (3) the total cost over the full term, (4) early repayment charges, and (5) what happens when the fixed term ends.
Watch: commercial mortgages explained
Short video explainers covering the core commercial mortgage topics, designed to complement this written guide. Each runs a few minutes and is presented by our advisory team. New videos are being added — check back or speak to an adviser in the meantime.
Short video explainers covering the core commercial mortgage topics, designed to complement this written guide. Each runs a few minutes and is presented by our advisory team. New videos are being added — check back or speak to an adviser in the meantime.
- What is a commercial mortgage?Video · coming soon
An introduction to commercial mortgages, who they are for, and the property types they cover.
- How commercial interest rates workVideo · coming soon
Walks through how commercial rates are priced, fixed vs variable options, and what drives the spread over base rate.
- The commercial mortgage application processVideo · coming soon
A step-by-step look at applying, from decision in principle through valuation, underwriting, and completion.
Download the commercial mortgage checklist
A printable quick reference covering the deposit you are likely to need, the documents to gather, questions to ask lenders, and the typical application timeline. Handy to keep alongside your paperwork as you prepare an application.
A printable quick reference covering the deposit you are likely to need, the documents to gather, questions to ask lenders, and the typical application timeline. Handy to keep alongside your paperwork as you prepare an application.
About this guide
Written by the Clearview Mortgage Solutions advisory team. Last updated: 16 April 2026.
This guide is written by Clearview Mortgage Solutions, FCA-authorised mortgage advisers with experience across commercial property lending. Our advisers are CeMAP-qualified and work with a panel of 90+ specialist lenders, from high-street banks to niche commercial providers.
The figures above are illustrative and intended as a general guide. Your exact rates, fees, and deposit requirements will depend on the property, the business, and the lender. Speak to an adviser for a tailored assessment of your situation.
Written by the Clearview Mortgage Solutions advisory team. Last updated: 16 April 2026.
Clearview Mortgage Solutions Ltd is FCA-authorised (FCA Reference 1013885). Our advisers are CeMAP-qualified and work with a panel of 90+ specialist commercial lenders, from high-street banks to niche providers.
The figures above are illustrative and intended as a general guide. Your exact rates, fees, and deposit requirements will depend on the property type, the business or rental income, and the lender. Speak to an adviser for a tailored assessment of your situation.
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