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What is a commercial mortgage? How they work, criteria and costs
A commercial mortgage is a loan secured on property used for business rather than as your home. You might use one to buy premises for your own business, such as a shop, office or workshop, or to buy a property you let to business tenants. Lenders look at the business or the rental income as much as at you, and most commercial mortgages are not regulated by the Financial Conduct Authority.
Updated on 17 September 2026 with current lender terms, stamp duty rates and regulation.
Deposit
25% or more
Many lenders go up to about 75% of the value, some less for specialist property
Term
Up to 25–30 years
Shorter terms are common, and the maximum varies by lender
Rates
Margin + base
Variable rates are usually a margin over Bank Rate or SONIA, with fixed options too
Regulation
Usually not
Unless at least 40% of the property is your or your family's home
What is a commercial mortgage?
It's a long-term loan to buy or refinance non-residential or part-residential property, secured on that property. If you don't keep up repayments, the lender can repossess it.
Borrowers are often limited companies, partnerships, sole traders, pension schemes or individual investors. Unlike a home mortgage, the terms are usually agreed case by case, and the rate depends on the strength of the business, the property and the deposit.
Commercial vs residential mortgages
| What differs | Residential mortgage | Commercial mortgage |
|---|---|---|
| What it's for | A home you live in | Business premises or commercial investment property |
| Deposit | Can be as low as 5% | Often 25% or more |
| How affordability is judged | Your personal income and outgoings | Business profits or rental income, plus the property |
| How rates are set | Off-the-shelf products | Usually a margin over a reference rate, set per case |
| Valuation | Often a quick lender valuation | A full commercial valuation, usually by a RICS surveyor |
| Regulation | FCA-regulated | Usually not FCA-regulated |
| Time to arrange | Often a few weeks to an offer | Usually longer |
Types of commercial mortgage
Owner-occupied
A trading business buying its own premises
A dental practice buys its surgery, or an engineering firm buys the unit it rents. The lender mainly looks at the business's accounts and whether its profits cover the repayments. You stop paying rent and build equity in the building instead.
Commercial investment
Buying property to let to business tenants
An investor buys a parade of shops or an office let to a firm on a ten-year lease. The lender focuses on the rent, how secure the tenant is and how long the lease has left to run.
Semi-commercial or mixed-use
A shop or office with a flat above
These sit between residential and commercial lending. More lenders will consider them than pure commercial property, and terms can be closer to buy-to-let when most of the value is residential.
Types of property that usually need a commercial mortgage
A standard residential or buy-to-let mortgage won't normally cover these.
| Property | Examples | What lenders focus on |
|---|---|---|
| Retail | High street shops, parades, showrooms | Location, tenant and lease, or your trading figures |
| Offices | Office buildings, suites, surgeries | Demand in the area, lease length, energy rating |
| Industrial | Warehouses, workshops, industrial units | Condition, access, how easily it could be re-let |
| Trading businesses | Pubs, hotels, care homes, nurseries | The business's trading record and your experience. The building and business are often valued together |
| Larger residential investments | Large HMOs, blocks of flats on one title | Total rent and how many units there are. Smaller HMOs can often use HMO buy-to-let mortgages |
| Land | Land with or without planning permission | Planning position and your plans. Development usually needs separate development finance |
How does a commercial mortgage work?
You borrow a lump sum and repay it over an agreed term, usually monthly. Payments are normally capital and interest, though some lenders allow interest-only periods or capital repayment holidays. Here's how a typical application runs.
- Initial termsA broker or lender looks at your figures and the property, and gives indicative terms: loan size, rate basis and fees.
- ApplicationYou provide accounts, bank statements, a statement of your assets and liabilities, and details of any leases.
- ValuationThe lender instructs a commercial valuation, usually by a RICS-registered surveyor, which you normally pay for.
- Offer and completionThe lender issues a facility letter, solicitors complete the legal work and the funds are released.
Commercial mortgage criteria: what lenders assess
What lenders look at
- Trading history
- Usually two or three years of accounts. Barclays, for example, asks for three years plus current management figures
- Debt service cover
- For owner-occupiers, whether profits cover the loan repayments with room to spare
- Rental cover
- For investments, whether the rent covers the interest by a set margin, often called the interest cover ratio (ICR)
- Tenant and lease
- How financially strong the tenant is and how many years are left on the lease
- Personal guarantees
- Directors are often asked to guarantee a company's borrowing personally
- The property
- Its value, condition and how easy it would be to sell or re-let
A new business can still get a commercial mortgage, but expect a larger deposit, fewer lenders and more scrutiny of your experience and business plan. Company directors can read more in our guide to mortgages for directors and the self-employed.
How much deposit do you need?
Plan on at least 25%. HSBC, for example, lends up to 75% of the purchase price or valuation, whichever is lower. Specialist property such as pubs, hotels or land often needs a bigger deposit, and a strong business or long lease can help you borrow closer to the maximum.
Commercial mortgage rates and terms
There's no single commercial mortgage rate. Lenders price each case, usually as a margin added to a reference rate:
- Variable rates track Bank of England Bank Rate, a lender's own base rate or, for larger borrowers, SONIA (the Sterling Overnight Index Average). Bank Rate is 3.75% after the Bank held it on 17 September 2026, although three of its nine rate-setters voted for a rise.
- Fixed rates give certainty over repayments. Big banks commonly offer fixes of up to ten years, but ending one early can mean a break cost.
The margin depends on the deposit, the property type, the strength of the business or tenant and the loan size. Commercial rates are usually higher than residential ones. For the wider picture, see our current UK mortgage rates update.
Commercial mortgage fees and costs
| Cost | What to know |
|---|---|
| Arrangement fee | Often negotiated per case and sometimes a percentage of the loan |
| Valuation fee | Commercial valuations usually cost more than residential ones |
| Legal fees | You usually pay your own solicitor and the lender's |
| Early repayment or break costs | Can apply to fixed rates and some variable loans |
| Stamp duty (England and Northern Ireland) | Non-residential and mixed-use rates: 0% up to £150,000, 2% on the next £100,000 and 5% above £250,000. Scotland and Wales have their own taxes |
| VAT | May be charged on the price if the seller has opted to tax the property |
We are not tax advisers. Stamp duty and VAT information in this article is a general summary based on the rates published at the time of writing, not a guarantee of what you will pay. Your solicitor or conveyancer will confirm the amount due, and you should take advice from a qualified tax adviser on your own circumstances.
Commercial mortgage advantages and disadvantages
| Advantages | Disadvantages |
|---|---|
| Payments build equity instead of paying rent | A large deposit ties up cash the business could use |
| Control over your premises, with no landlord or lease renewal | You take on repairs, insurance and the risk of values falling |
| Repayments can be fixed for certainty | Variable rates rise if Bank Rate goes up |
| Investment property can produce rental income | An empty unit still has to be paid for |
| Long terms keep monthly payments manageable | Personal guarantees can put your own assets at risk |
Are commercial mortgages regulated?
Most aren't. A mortgage is only regulated by the FCA if you borrow as an individual or trustee and at least 40% of the property is used, or will be used, as a home by you or a close family member. Loans to limited companies aren't regulated mortgages.
When a mortgage on a mixed-use property is regulated
Share of the property used as a home by the borrower or close family
Most commercial mortgages are not regulated by the Financial Conduct Authority, so you won't get the same FCA rules and protections that apply to a regulated home mortgage. Whether your loan is regulated depends on your circumstances and the purpose of the loan.
How long does a commercial mortgage take?
Allow longer than for a house purchase. Underwriting is done by hand, commercial valuations take longer, and the legal work often covers leases, planning and title issues. A straightforward owner-occupied purchase with accounts ready moves fastest. Complex properties, several tenants or a new business can take a good deal longer. If you need to buy quickly, for example at auction, bridging finance is sometimes used first and refinanced onto a commercial mortgage later.
Commercial mortgage FAQs
How does a commercial mortgage work?
You borrow against a business or investment property and repay over an agreed term, usually monthly. The lender judges the loan on the business's profits or the rent, the property's value and your deposit.
What deposit do I need for a commercial mortgage?
Usually at least 25% of the price or valuation. Specialist property, a new business or a weak lease can mean needing more.
Can I get a commercial mortgage for a new business?
Sometimes, but fewer lenders will consider it. A bigger deposit, relevant experience, a solid business plan and personal assets all help.
Can I get a commercial mortgage through a limited company?
Yes, and many are arranged this way. Lenders usually ask directors for personal guarantees, and the loan won't be FCA-regulated.
Are commercial mortgage rates higher than residential rates?
Usually, yes. Each case is priced individually, and the margin depends on the deposit, the property and the strength of the business or tenant.
Is a shop with a flat above a commercial mortgage?
Usually it's semi-commercial. If you or close family will live in the flat and it makes up at least 40% of the property, the mortgage may be regulated.
Thinking about a commercial property?
Before you make an offer, get your last few years' accounts together, check the lease and tenant if the property is let, and work out how big a deposit you can put down without leaving the business short of cash.
Quick Mortgages is a whole-of-market broker based in Birmingham, helping clients across the UK with no broker fees. We arrange commercial and semi-commercial mortgages, for businesses buying their own premises and for investors buying let property. We'll compare lenders for you, prepare the case and manage the application through to completion. If a buy-to-let or specialist mortgage suits the property better, we'll tell you.
Sources
- legislation.gov.uk, Financial Services and Markets Act 2000 (Regulated Activities) Order 2001, article 61
- GOV.UK, Stamp Duty Land Tax: rates for non-residential and mixed land and property
- HMRC, Opting to tax land and buildings (VAT Notice 742A)
- HSBC UK, Commercial mortgage
- NatWest, Commercial mortgage
- Barclays, Commercial mortgages
- Bank of England, Monetary Policy Summary, 17 September 2026
Correct on 17 September 2026 and may change.
Disclaimer:
This article is for general guidance purposes only and does not constitute legal, financial, or professional advice. Mortgage products and their terms can vary, and it is important to seek advice from a qualified, regulated professional who can assess your individual circumstances. Please ensure you consider your unique needs before making any financial decisions.
While every effort is made to ensure that the information provided on this blog is accurate and up-to-date, we do not guarantee its completeness or accuracy. The mortgage market can change rapidly, and the information on this blog may become outdated. We recommend verifying any information before acting on it and seeking tailored advice.
THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME. YOUR HOME OR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE OR ANY OTHER DEBT SECURED ON IT.
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