Last reviewed: June 2026
TL;DR- Commercial mortgages finance the purchase of commercial properties - offices, retail units, industrial units, restaurants, hotels and other non-residential properties.
- Commercial mortgages are not regulated by the FCA - they are commercial lending arrangements assessed on commercial underwriting criteria.
- LTVs are typically lower than residential mortgages - commonly 65-75% - requiring a larger deposit from the borrower.
- Affordability is assessed on rental income yield or business income, depending on whether the property is owner-occupied or investment.
What Is a Commercial Mortgage?
A commercial mortgage is a loan secured against a commercial property - one used for business or investment purposes rather than residential occupation. Property types include retail units, offices, industrial and warehouse space, restaurants, hotels, care homes, petrol stations and other specialist commercial property types. Commercial mortgages are also used to purchase land for development and mixed-use properties where the commercial element is the primary use.
Commercial mortgages are not regulated by the FCA under the Mortgage Credit Directive - they are commercial lending products assessed by lenders using their own commercial underwriting criteria rather than the standardised consumer conduct rules that apply to residential mortgages.
Owner-Occupied vs Investment Commercial Mortgages
Commercial mortgages fall into two broad categories:
- Owner-occupied: the borrower's business uses the property as its trading premises. Affordability is assessed primarily on the business's ability to service the mortgage from trading income.
- Investment: the property is let to a tenant (or tenants) and the rental income services the mortgage. Affordability is assessed on the rental income yield and the creditworthiness of the tenant.
The underwriting approach, LTV and rates differ between owner-occupied and investment commercial mortgages, and between property types. Specialist property sectors (hotels, care homes, petrol stations) are assessed on the underlying business trading performance rather than just the property value.
LTV and Deposit Requirements
Commercial mortgage LTVs are typically lower than residential mortgages, reflecting the higher risk and lower liquidity of commercial property. Standard commercial mortgages are commonly available at 65-75% LTV, requiring a deposit or equity stake of 25-35%. Higher LTVs may be achievable on strong investment properties with institutional-grade tenants on long leases, but typically require specialist lenders or additional security.
Interest Rates and Terms
Commercial mortgage rates are higher than equivalent residential rates, reflecting the higher risk and more complex assessment. Rates are typically quoted as a margin above the Bank of England base rate or SONIA (the Sterling Overnight Index Average) for variable rate products, or as a fixed rate for defined periods. Terms typically range from 5 to 25 years. Arrangement fees are commonly 1-2% of the loan amount. Legal and valuation costs are higher than for residential transactions.
Frequently Asked Questions
Can I use a commercial mortgage to buy a property for my business?
Yes. An owner-occupied commercial mortgage is specifically designed for businesses that want to purchase their trading premises. The lender assesses the business's trading performance and financial position to determine whether the business can service the mortgage. Owning business premises can provide security of tenure, eliminate rent exposure and allow the business to build an asset on its balance sheet.
What is the minimum loan size for a commercial mortgage?
Commercial mortgage lenders typically impose minimum loan sizes due to the cost of commercial underwriting and legal work. Minimum loan sizes commonly range from £50,000 to £150,000, depending on the lender. Very small commercial loans below these thresholds may need to be funded through business loans, asset finance or other commercial lending products rather than a formal commercial mortgage.
How is a commercial property valued for mortgage purposes?
Commercial properties are valued using different methods depending on the type and use: investment properties let to tenants are typically valued using the investment method (capitalisation of rental income at the appropriate yield); owner-occupied trading properties may be valued using the profits method (for specialist trading properties such as hotels and care homes) or the comparable method (for standard commercial units). The valuation is carried out by a RICS-qualified commercial valuer instructed by the lender.
Is a commercial mortgage available for a property with planning permission for commercial use but not yet built?
Development finance rather than a standard commercial mortgage is typically used for commercial property that does not yet exist. Development finance releases funds in stages as construction progresses and is repaid by refinancing onto a commercial mortgage at practical completion, or by sale of the completed units. Commercial development finance is a specialist area and requires specialist lenders and brokers.
