What is a commercial mortgage?
A commercial mortgage is a loan secured against a property that is not residential. That covers offices, retail units, warehouses, factories, pubs, restaurants, care homes, and land. It can also stretch to mixed-use property, where one part of the building trades as a business and another part is lived in, like a flat above a shop.
You can take one out as a limited company, a sole trader, a partnership, an LLP, and sometimes as an individual buying commercial property to invest in. How the borrowing is set up depends on who is buying and why.
Most commercial lending sits outside FCA regulation, which is not the case for residential mortgages. Fewer standard protections apply, so independent broker advice matters here: it helps you go into the deal knowing exactly what the terms and obligations are. If residential investment is also on your mind, our buy-to-let mortgage guide sets out the main differences.
A commercial mortgage is a loan secured against a property that is not residential. That covers offices, retail units, warehouses, factories, pubs, restaurants, care homes, and land. It can also stretch to mixed-use property, where one part of the building trades as a business and another part is lived in, like a flat above a shop.
Owner-occupied commercial mortgages are one of the most common cases. Here you buy the premises you trade from instead of renting them. That gives you long-term security and a stake in an asset that may grow in value, rather than handing rent to a landlord.
You can take one out as a limited company, a sole trader, a partnership, an LLP, and sometimes as an individual buying commercial property to invest in. How the borrowing is set up depends on who is buying and why.
Most commercial lending sits outside FCA regulation, which is not the case for residential mortgages. Fewer standard protections apply, so independent broker advice matters here: it helps you go into the deal knowing exactly what the terms and obligations are. If residential investment is also on your mind, our buy-to-let mortgage guide sets out the main 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
A commercial mortgage usually needs a deposit of 25–40% of the property’s value, though a lender may take less on a strong application. The loan-to-value ratio (the size of the loan against what the property is worth) tends to be capped at 60–75%, where a residential mortgage can reach up to 95%.
What you put down depends on the type of property, how solid the business or rental income is, your track record as a borrower, and how keen the lender is on that sector. Specialist buildings such as pubs, hotels, or care homes often call for a bigger deposit.
Key numbers at a glance
How much deposit do I need for a commercial mortgage?
Most commercial lenders expect 25–40% down, with 30% a common middle ground for a standard office, retail unit, or industrial premises. Loan-to-value (LTV) is the share of the property value you are borrowing. A £375,000 loan on a £500,000 property works out at 75% LTV.
The exact figure moves with a few things. It goes up for specialist property (pubs, hotels, care homes, petrol stations), a short trading history, thin rental cover, or a property in a weaker location. It comes down when you have a solid multi-year trading record, blue-chip tenants signed to long leases, a large personal asset base, or extra security to put against the loan.
A few worked examples. A limited company buying a £600,000 retail unit to let out would usually need £150,000–£180,000 (25–30%). A first-time hotel buyer might need £200,000–£240,000 on the same price (35–40%). An established restaurant group refinancing could get closer to 75% LTV on the strength of its accounts.
A commercial mortgage usually needs a deposit of 25–40% of the property’s value, though a lender may take less on a strong application. Loan-to-value (LTV) is the share of the property value you are borrowing, so a £375,000 loan on a £500,000 property is 75% LTV. Commercial lenders tend to cap LTV at 60–75%, against up to 95% on a residential mortgage.
What you put down depends on the type of property, how solid the business or rental income is, your track record as a borrower, and how keen the lender is on that sector. Specialist buildings such as pubs, hotels, or care homes often call for a bigger deposit.
How lenders assess commercial mortgage applications
A lender weighs up two things: the income the property brings in (or the business trading from it) and your own financial position. On an investment property, the rent usually has to cover 125–150% of the mortgage payments, much like the test used for buy-to-let mortgages. On owner-occupied premises, the business needs to show enough turnover and profit to carry the loan.
You will need to hand over business accounts (usually two to three years), a business plan, cash flow projections, details of any tenancies or leases already in place, and your personal financial information. The fuller your paperwork, the smoother the whole thing runs.
A commercial application takes longer to process than a residential one, often six to twelve weeks. Having your paperwork ready, and working with a broker who knows what each lender asks for, can shave real time off that.
A lender weighs up two things: the income the property brings in (or the business trading from it) and your own financial position. On an investment property, the rent usually has to cover 125–150% of the mortgage payments, much like the test used for buy-to-let mortgages. On owner-occupied premises, the business needs to show enough turnover and profit to carry the loan.
A commercial application takes longer to process than a residential one, often six to twelve weeks. Having your paperwork ready, and working with a broker who knows what each lender asks for, can shave real time off that.
Application process: step-by-step
- 01
Initial broker consultation
Talk through your goals, the property, and your finances so the broker can draw up a shortlist of suitable lenders and give you a feel for likely terms.
- 02
Documentation gathering
Gather your business accounts, management figures, bank statements, ID, and any property or tenancy details, ready to submit.
- 03
Decision in principle
The lender you pick issues an indicative agreement, confirming it will lend in principle. This still hangs on the valuation and full underwriting.
- 04
Property valuation
A RICS-qualified commercial surveyor visits the property to confirm what it is worth and, where it matters, what rent it could earn.
- 05
Lender underwriting
The underwriter goes through the whole case, from accounts and projections to the valuation and credit checks, and may come back with questions or ask for more.
- 06
Formal mortgage offer
With underwriting done, the lender puts out a formal offer that spells out the rate, the term, the fees, and any conditions.
- 07
Legal and conveyancing
Solicitors for both sides run the searches, review the contract, check the leases, and move the funds between buyer, seller, and lender.
- 08
Completion and drawdown
The funds are released, the property changes hands, and the mortgage begins. Your first payment is usually due the month after.
How long does commercial mortgage approval take?
Most commercial applications complete within 6–12 weeks from first enquiry to drawdown, though a complicated case can run longer. The timeline below is typical for a straightforward application where the borrower replies quickly.
Decision in principle takes 1–2 weeks while the lender looks over your opening figures. The valuation takes another 1–2 weeks to instruct a surveyor, inspect the property, and get the report back. Underwriting runs 2–4 weeks for the full credit review, any follow-up questions, and sign-off. The formal offer and legal work take a further 2–4 weeks for the offer to land, the searches to finish, and the funds to be drawn down.
Having your document pack ready before you apply is the one thing that shortens the timeline most. When accounts, bank statements, and property details come through promptly, a case can complete several weeks sooner than one where information arrives in dribs and drabs.
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 rates sit higher than residential ones, usually 2–6% above the Bank of England base rate, depending on the property type, the LTV, and your profile as a borrower. You can take a fixed or a variable rate, and the fixed period normally runs from two to five years.
An arrangement fee is common, usually 1–2% of the loan. On top of that you may meet valuation fees, legal fees, and sometimes an exit fee. Before you commit, get clear on the total cost of the mortgage rather than the interest rate on its own.
Understanding commercial mortgage rates
Commercial rates run about 2–6% above residential ones, because a lender treats commercial lending as higher risk. Again, you can go fixed or variable, with the fixed period usually two to five years.
To put numbers on it: if the Bank of England base rate is 5%, commercial mortgages usually land in the 7–11% range. On a £500,000 mortgage at 8%, the interest comes to roughly £40,000 a year. Shifting the rate by just 0.5% can save around £30,000 over a 20-year term, so comparing offers closely is worth the effort.
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, worked on standard capital-and-interest repayment over a 20-year term on a £500,000 loan. What you actually pay will move with fees, any rate change once a fixed period ends, overpayments, and the exact product terms. The point to hold on to: even a 1% difference in rate builds up to roughly £60,000–£65,000 across the full term.
How to compare commercial mortgage offers
Look past the headline rate. Weigh up: (1) the interest rate and whether it is fixed or variable, (2) every fee, from arrangement and valuation to legal and exit, (3) the total cost across the full term, (4) any early repayment charges, and (5) what happens once the fixed term ends.
Watch: commercial mortgages explained
A set of short video explainers on the main commercial mortgage topics, made to sit alongside this written guide. Each one runs a few minutes and features our advisory team. More are on the way, so check back, or speak to an adviser now if you would rather.
A set of short video explainers on the main commercial mortgage topics, made to sit alongside this written guide. Each one runs a few minutes and features our advisory team. More are on the way, so check back, or speak to an adviser now if you would rather.
- What is a commercial mortgage?Video · coming soon
A short intro to commercial mortgages: who they suit and the kinds of property they cover.
- How commercial interest rates workVideo · coming soon
How commercial rates are priced, the choice between fixed and variable, and what drives the gap over base rate.
- The commercial mortgage application processVideo · coming soon
A step-by-step look at applying, from decision in principle through valuation and underwriting to completion.
Download the commercial mortgage checklist
A printable quick reference that covers the deposit you are likely to need, the documents to gather, the questions worth asking lenders, and the usual application timeline. Handy to keep next to your paperwork while you get an application ready.
A printable quick reference that covers the deposit you are likely to need, the documents to gather, the questions worth asking lenders, and the usual application timeline. Handy to keep next to your paperwork while you get an application ready.
About this guide
Written by the Clearview Mortgage Solutions advisory team. Last updated: 16 April 2026.
This guide comes from Clearview Mortgage Solutions, FCA-authorised mortgage advisers who work across commercial property lending. Our advisers are CeMAP-qualified and deal with a panel of 90+ specialist lenders, from high-street banks to niche commercial providers.
The figures above are illustrative and meant only as a general guide. Your own rates, fees, and deposit will depend on the property, the business behind it, and the lender. Speak to an adviser for an assessment built around 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 meant only as a general guide. Your own rates, fees, and deposit will depend on the property type, the business or rental income behind it, and the lender. Speak to an adviser for an assessment built around your situation.
FCA-authorised
- Regulated mortgage advice you can trust
- Clear fee disclosure up front
CeMAP-qualified advisers
- Industry-standard mortgage qualification
- Specialist commercial experience
90+ lender panel
- High-street and specialist lenders
- Access to deals you won’t find direct