TL;DR
A commercial mortgage lets a business buy its trading premises or a commercial property investment. Rates are higher than residential mortgages, maximum LTV is typically 70 percent, and a personal guarantee from directors is almost always required. The lender's assessment focuses on business trading performance and the property's rental income potential, not just personal creditworthiness.
Last reviewed: June 2026 | Sources: FCA, HMRC, Companies House
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Business Finance Before You Apply for a Commercial Mortgage Typical LTV: 60-70% on commercial propertyRates: typically 1-3% above base ratePersonal guarantee: almost always required from directorsTerm: typically 10-25 yearsRegulated?: no — commercial mortgages are unregulated |
What a commercial mortgage is and when you need one
A commercial mortgage is a secured loan used to purchase or refinance a commercial property — business premises, retail units, offices, industrial units, or mixed-use buildings. It differs from a residential mortgage in that it is secured against a commercial rather than residential property, is assessed on the trading performance of the business as well as the property value, and is almost entirely unregulated — FCA consumer protections that apply to residential mortgages do not generally apply.
Businesses use commercial mortgages to buy their own trading premises rather than continue renting, to purchase investment property for letting to other businesses, or to refinance existing commercial property debt. Owning premises eliminates rent exposure and builds a capital asset within the business, but requires a significantly larger upfront capital commitment and creates a long-term secured debt obligation.
How commercial mortgage assessment differs from residential
Commercial mortgage lenders assess applications on three dimensions: the strength of the borrower's business, the value and lettability of the property, and the personal financial position of the directors or owners. Business accounts for the previous two to three years are required, along with management accounts if the most recent full-year accounts are more than six months old. Lenders typically require that rental income from the property, or the business's trading profit available to service the debt, covers the mortgage payment by a minimum of 125 to 150 percent.
The property itself is valued by a specialist commercial valuer rather than a residential valuer. Commercial property valuations consider the property's current letting income (if let), the market rent it could achieve if vacant, and comparable sales evidence. An empty commercial property in a poor location will achieve a lower valuation than its physical construction cost suggests, which affects the LTV calculation directly.
Personal guarantees and director liability
Almost all commercial mortgage lenders require personal guarantees from the directors or significant shareholders of the borrowing business. A personal guarantee means that if the company defaults on the mortgage and the security property is insufficient to repay the debt, the lender can pursue the guarantors personally for the shortfall. This effectively removes the liability protection that a limited company structure would otherwise provide.
The guarantee may be for the full loan amount or limited to a specific sum. It may be joint and several — meaning each guarantor is individually liable for the full guaranteed amount — or several only, where each guarantor is liable only for their proportionate share. Read the guarantee terms carefully and seek independent legal advice before signing. A personal guarantee on a commercial mortgage is a significant personal financial commitment regardless of the business's corporate structure.
Costs beyond the interest rate
Arrangement fees on commercial mortgages are typically one to two percent of the loan amount and are rarely waived. Legal fees are higher than residential transactions because the lender's solicitor acts separately from the borrower's solicitor and both must be paid. A specialist commercial property valuation costs significantly more than a residential survey. Stamp Duty Land Tax on commercial property applies at different rates from residential SDLT — zero on the first £150,000, two percent on £150,001 to £250,000, and five percent above £250,000. These costs should be modelled carefully before proceeding.
What to prepare before approaching a lender
Prepare two to three years of full statutory accounts for the business, current management accounts, a business plan with cash flow projections showing debt serviceability, details of any existing business debt, and personal financial statements for all directors who will provide guarantees. The stronger and more complete the application pack, the faster and more competitive the lender response will be. Working through a specialist commercial mortgage broker who can approach multiple lenders simultaneously is advisable — commercial mortgage terms vary significantly between lenders and the market is not standardised in the way residential mortgages are.
Commercial vs Residential Mortgage: Key Differences
| Factor | Residential Mortgage | Commercial Mortgage |
|---|---|---|
| FCA regulation | Yes — consumer protections apply | No — unregulated product |
| Max LTV | Up to 95% (with MBS) | Typically 60-70% |
| Interest rate | Base rate + 0.5-2% | Base rate + 1-3% |
| Personal guarantee | Not required | Almost always required |
| Assessment basis | Personal income | Business trading + property income |
| Arrangement fee | 0-1% | 1-2% |
| Legal costs | £1,000-£3,000 | £3,000-£10,000+ |
| Valuation | £250-£800 (RICS) | £1,000-£5,000+ (specialist) |
| Term | Up to 35 years | Typically 10-25 years |
Source: FCA, HMRC. Commercial mortgage terms vary significantly by lender.
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Disclaimer This article is for information only and does not constitute regulated financial advice. Kael Tripton Ltd is an independent editorial publisher and is not regulated by the FCA. |
Frequently asked questions
Can a limited company take out a commercial mortgage?
Yes. Commercial mortgages can be taken out in a limited company name. However, most lenders still require personal guarantees from directors, which means the limited liability protection is effectively bypassed for mortgage purposes. Some specialist lenders offer non-recourse commercial mortgages where the personal guarantee is limited or not required, but these are less common and typically carry higher rates.
What SDLT applies to commercial property?
Stamp Duty Land Tax on non-residential property in England applies at zero percent on the first £150,000, two percent from £150,001 to £250,000, and five percent above £250,000. Different rates apply in Scotland (LBTT) and Wales (LTT). Mixed-use properties are assessed at commercial rates, which can be more favourable than residential rates.
How long does a commercial mortgage take to arrange?
Commercial mortgages typically take longer than residential mortgages — six to twelve weeks from application to completion is common for straightforward cases, and three to six months for complex transactions. The commercial valuation, specialist legal work and lender credit committee processes all take longer than their residential equivalents.
Can I use a commercial mortgage to buy a mixed-use property?
Yes. Mixed-use properties — typically a commercial ground floor with residential upper floors — can be purchased with commercial mortgage finance. The lender assesses both the commercial and residential elements and the blended rental income. Some specialist lenders focus specifically on mixed-use property finance.
What happens if my business cannot service the commercial mortgage?
If the business cannot maintain mortgage payments, the lender can appoint a Law of Property Act receiver to manage and sell the security property. Personal guarantors can be pursued for any shortfall between the sale proceeds and the outstanding debt. Early communication with the lender at the first sign of difficulty is essential — lenders have more options to assist at an early stage than after default.
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Sources GOV.UK: SDLT on Commercial Property |
