The commercial mortgage guide for UK businesses

Buying the premises your business trades from, or investing in a commercial property to let, is one of the bigger financial decisions you will make. A commercial mortgage is usually how it gets funded — but the process differs from a residential mortgage in ways that catch people out. This guide explains what a commercial mortgage is, what lenders look at, and roughly what to expect, so you can walk into a conversation already knowing the shape of it.

What a commercial mortgage actually is

A commercial mortgage is a loan secured against a property used for business purposes, rather than somewhere you live. It works on the same broad principle as a home loan — you borrow against the value of the property and repay over an agreed term — but the criteria, pricing and paperwork are geared around a business rather than a household.

It helps to split commercial mortgages into two types, because lenders assess them differently:

• Owner-occupier mortgages are for a business buying premises it will trade from itself — a shop, a workshop, a dental practice, an office. Here the lender is really lending against the strength of your trading business, because your business is the thing that generates the money to repay.
• Commercial investment (or commercial buy-to-let) mortgages are for buying a property you will let to a tenant. In this case the lender focuses on the rental income the property produces and the reliability of the tenant, more than on your own trade.

Knowing which category you fall into matters, because it changes what a lender wants to see and how they work out how much you can borrow.

Typical uses

Commercial mortgages are used for more than a straightforward purchase. Common situations include:

• Buying your premises instead of renting — turning a monthly cost into an asset you own, and giving you certainty over where you trade.
• Refinancing an existing loan — moving to a better rate or terms, or releasing equity from a property you already own to reinvest in the business.
• Building or expanding a property portfolio — funding additional investment properties as a landlord.
• Buying business assets that come with property, such as acquiring a going concern where the premises are part of the deal.

What lenders look at

There is no single tick-box for a commercial mortgage — lenders build a picture from several angles. The main ones are:

• Deposit and loan-to-value (LTV). Commercial lending is generally more conservative than residential, so you should expect to put down a meaningful deposit. As a rough guide, many lenders look for somewhere around a quarter to a third of the value, meaning LTVs often sit around 65–75% — though this varies a lot by property type, sector and the strength of the case.
• Affordability and debt service. The lender needs to see the business can comfortably cover the repayments. For owner-occupiers that means your trading profit; for investment property it means the rent, usually with a buffer so the income comfortably exceeds the loan cost.
• Trading history. Two or three years of accounts is a common starting point, though newer businesses can still be considered with a strong plan or additional security. Lenders want to understand that the income is stable and credible.
• The property itself. Its type, condition, location and how easily it could be sold or re-let all affect the decision. A standard, versatile unit is viewed more favourably than a highly specialised building with few alternative uses.
• Personal guarantees. Especially for limited companies, directors are often asked to provide a personal guarantee — a personal commitment to cover the debt if the business cannot. It is a normal part of commercial lending, but one worth understanding fully before you sign.

Rates and terms at a high level

Commercial mortgage pricing is less standardised than residential — there are fewer off-the-shelf products and more cases priced individually on risk. Rates are typically higher than a residential mortgage, and are usually set either at a fixed rate for a period or as a margin above a reference rate such as the Bank of England base rate. Terms commonly run up to around 20 to 25 years, though shorter terms are common too, particularly for investment lending.

It is worth treating any headline figure with caution. The rate, fees and term you are actually offered depend heavily on the property, your sector, the deposit and the lender's view of the risk — so exact numbers only become meaningful once a specialist has assessed your specific situation. This guide is general information, not a quote or advice.

The application steps

While every case differs, most applications follow a recognisable path:

• Decision in principle. An early indication of what a lender might offer, based on an outline of your business and the property.
• Full application and documents. Accounts, bank statements, business plans or projections, and details of the property and your deposit.
• Valuation. The lender instructs a professional valuation to confirm the property is worth what you are paying and is suitable security.
• Underwriting and formal offer. The lender reviews everything and, if satisfied, issues a formal mortgage offer setting out the terms.
• Legal work and completion. Solicitors handle the conveyancing and the funds are released so the purchase or refinance completes.

Realistically this takes weeks rather than days, so it pays to start early and have your paperwork ready.

Why a whole-of-market broker helps

Because commercial cases are individually priced and spread across a wide range of lenders — high-street banks, challenger banks and specialist lenders — the difference between a good outcome and a poor one often comes down to matching your case to the right lender. A whole-of-market broker knows which lenders are comfortable with your sector, property type and circumstances, can present your case in the way underwriters want to see, and saves you approaching lenders one by one. Advice on commercial mortgages is provided by our regulated specialist partners, and we simply make the introduction. You can read more about how this works on our business finance and lending page, or get in touch to talk through your situation.

A commercial mortgage is a significant commitment, but it is a well-trodden path, and understanding the moving parts — the type of mortgage, the deposit, affordability, the property and the guarantees — puts you in a far stronger position before you speak to anyone. When you are ready, we can point you to a specialist who does this every day.