- Commercial mortgages typically offer a loan-to-value (LTV) of 65 to 75 percent, so most lenders expect a deposit of 25 to 35 percent of the property value.
- Terms commonly run from 3 to 25 years, shorter than the 25 to 40 year terms seen on residential lending.
- Most commercial mortgages on properties used wholly for business are not regulated by the Financial Conduct Authority (FCA), unlike regulated residential and buy-to-let consumer loans.
- Interest can be fixed, variable, or linked to SONIA, the Sterling Overnight Index Average administered by the Bank of England since it replaced LIBOR at the end of 2021.
- Stamp Duty Land Tax (SDLT) on non-residential property in England and Northern Ireland is charged at 0 percent up to 150,000 pounds, 2 percent on 150,001 to 250,000 pounds, and 5 percent above 250,000 pounds (HMRC, as of 2026).
A commercial mortgage funds business property, usually at 65 to 75 percent LTV over 3 to 25 years. Most are unregulated, priced on business strength, and carry commercial stamp duty rather than residential rates.
Last reviewed: June 2026
What a commercial mortgage is
A commercial mortgage is a secured loan used to buy or refinance property that is used for business rather than as a private home. The property acts as security, which means the lender can repossess and sell it if the borrower fails to keep up repayments. Typical uses include buying premises for a trading business, purchasing an investment property to let to commercial tenants, releasing equity from property already owned, or developing or converting a building.
Two broad categories exist. An owner-occupier commercial mortgage is taken out by a business that intends to trade from the property itself, such as a shop, office, warehouse, or factory. A commercial investment mortgage is taken out by a landlord who plans to let the property to a third party and service the loan from rental income. The two types are assessed differently: owner-occupiers are judged on trading profitability, while investors are judged largely on the rent the property can generate.
How a commercial mortgage differs from a residential mortgage
The headline difference is purpose. A residential mortgage funds a place to live and is assessed mainly on personal income and credit history. A commercial mortgage funds an income-producing or trading asset and is assessed mainly on the strength of a business or an investment case. That single distinction drives most of the practical differences in deposit, term, pricing, and regulation.
Residential lending is heavily standardised and largely regulated, so two borrowers with similar profiles often receive similar offers. Commercial lending is far more individually underwritten. Lenders price each case on its own risk, so the rate, fees, and maximum loan can vary widely between applicants and between lenders. There is no single advertised rate that fits every borrower, which is one reason a broker is often involved.
| Feature | Commercial mortgage | Residential mortgage |
|---|---|---|
| Purpose | Business premises or commercial investment | A home to live in |
| Typical LTV | 65 to 75 percent | Up to 90 to 95 percent |
| Typical term | 3 to 25 years | 25 to 40 years |
| Main assessment | Business financials and rental income | Personal income and credit |
| Pricing | Bespoke, risk-based per case | Standardised advertised products |
| Regulation | Usually unregulated by the FCA | FCA regulated |
| Stamp duty basis | Non-residential SDLT rates | Residential SDLT rates |
Loan-to-value and deposit
Most commercial lenders cap LTV at 65 to 75 percent of the property value or, where lower, the purchase price. A borrower buying premises at 400,000 pounds with a 70 percent LTV would therefore need a deposit of 120,000 pounds and could borrow 280,000 pounds. Owner-occupiers running a profitable trading business can sometimes access the higher end of the range, because the lender values the operating cash flow. Investment purchases tend to sit lower, and specialist or higher-risk property types may be capped further still.
Additional security can lift the available loan. Some businesses pledge other assets, or use a government-backed scheme where eligible, to bridge a deposit gap. Lenders also look at affordability beyond the headline LTV, so a strong deposit alone does not guarantee approval if the income case is weak.
Interest rate types: fixed, variable and SONIA-linked
Commercial mortgage pricing usually falls into three structures. A fixed rate locks the interest cost for an agreed period, giving certainty over monthly payments but often at a higher starting rate and with potential early repayment charges. A variable rate moves at the lender's discretion or in line with a reference rate, so payments can rise or fall.
The third structure is a tracker linked to a benchmark. Many commercial loans now reference SONIA, the Sterling Overnight Index Average. SONIA is administered by the Bank of England and became the market's preferred sterling benchmark after LIBOR was discontinued at the end of 2021. A SONIA-linked loan is typically quoted as SONIA plus a fixed margin, so if the benchmark moves, the rate moves with it. Borrowers comparing offers should look at both the margin and the arrangement fee, not the headline rate alone, because a low margin paired with a high fee can cost more overall.
Typical terms and repayment
Commercial mortgage terms generally run from 3 to 25 years, shorter than residential terms. Loans can be arranged on a capital-and-interest basis, where the balance reduces over the term, or interest-only, where the capital is repaid at the end from sale, refinance, or other funds. Interest-only is more common on investment cases. A shorter term raises monthly payments but reduces total interest paid, so the choice of term has a direct effect on cash flow.
What lenders assess
Underwriting is detailed. For an owner-occupier, lenders examine business financials: typically two to three years of accounts, management figures, bank statements, and projections. They want to see that trading profit comfortably covers the new mortgage payment, often measured through a debt service coverage ratio. Personal credit of the directors and any history of County Court Judgments are usually checked too.
The property type matters because it affects how easily the lender could sell the asset. Standard offices, shops, warehouses, and industrial units are widely accepted. Specialist properties such as petrol stations, care homes, or licensed premises are seen as higher risk and attract more cautious terms. For investment cases, the rental income is central: lenders apply an interest cover ratio to confirm the rent covers the loan with a margin, and they assess the quality and length of tenant leases. A full valuation by a qualified surveyor is almost always required.
FCA regulated versus unregulated commercial mortgages
Whether a commercial mortgage is regulated by the Financial Conduct Authority depends on how the property is used, not simply on the borrower being a business. A loan secured on a property where at least 40 percent is used as a dwelling by the borrower or a close family member can fall under regulated mortgage rules. A loan on a property used wholly or predominantly for business is generally unregulated commercial lending.
Regulation matters because it changes the protections available. Regulated borrowers benefit from FCA conduct rules and access to the Financial Ombudsman Service if something goes wrong. Unregulated commercial borrowers have fewer of these statutory protections, on the basis that businesses are expected to take their own advice. This is worth confirming before signing, because the same lender may offer both regulated and unregulated products depending on the property.
The role of a broker
Because commercial lending is bespoke and not openly advertised, many borrowers use a commercial mortgage broker. A broker can approach multiple lenders, including specialist and challenger banks that do not deal directly with the public, and can package the application to present the business case clearly. Brokers usually charge a fee, sometimes a percentage of the loan, and may also receive a commission from the lender. Borrowers should ask for the fee structure in writing and check whether the broker is independent or tied to a limited panel.
Stamp duty on commercial property
Buying commercial property usually triggers Stamp Duty Land Tax in England and Northern Ireland. Non-residential SDLT is charged in bands: 0 percent on the portion up to 150,000 pounds, 2 percent on the portion from 150,001 to 250,000 pounds, and 5 percent on anything above 250,000 pounds, as published by HMRC and valid as of 2026. Scotland uses Land and Buildings Transaction Tax and Wales uses Land Transaction Tax, both with their own non-residential bands. SDLT is a buyer cost and is not usually funded by the mortgage, so it should be budgeted alongside the deposit, valuation, legal, and arrangement fees.
Frequently Asked Questions
What is a commercial mortgage?
A commercial mortgage is a loan secured against property used for business purposes, such as offices, shops, warehouses, or commercial investment properties. The property acts as security, and the loan is repaid over an agreed term. It differs from a residential mortgage, which funds a home and is assessed mainly on personal income.
How much can I borrow on a commercial mortgage?
The amount depends on the property value, your deposit, and affordability. Lenders typically advance 65 to 75 percent of the value, and the loan must be serviced comfortably by trading profit or rental income. A profitable owner-occupied business with strong accounts can usually borrow more than a higher-risk or specialist case.
What LTV do commercial mortgages offer?
Most commercial mortgages offer a loan-to-value of 65 to 75 percent, so a deposit of 25 to 35 percent is normally required. Stronger owner-occupier cases may reach the upper end, while specialist property types or investment purchases are often capped lower. Additional security can sometimes increase the available loan.
Is a commercial mortgage FCA regulated?
Usually not. A mortgage on a property used wholly or predominantly for business is generally unregulated by the Financial Conduct Authority. Regulation can apply where at least 40 percent of the property is used as a home by the borrower or a close family member. Regulated borrowers have access to the Financial Ombudsman Service and FCA conduct protections.
What stamp duty do I pay on commercial property?
In England and Northern Ireland, non-residential Stamp Duty Land Tax is 0 percent up to 150,000 pounds, 2 percent on the portion from 150,001 to 250,000 pounds, and 5 percent above 250,000 pounds, as set by HMRC and valid as of 2026. Scotland and Wales apply their own land transaction taxes with separate non-residential bands.
Can I get a commercial mortgage with a limited trading history?
It is possible but harder. Most lenders prefer two to three years of accounts. Newer businesses may still secure funding by providing detailed projections, a larger deposit, or additional security, and by demonstrating relevant industry experience. Terms tend to be more cautious where the trading record is short.
