Commercial mortgage

Compare commercial mortgages

Search our panel of trusted providers
Find out if a commercial mortgage could be the right option for you

What is a commercial mortgage?

A commercial mortgage is a mortgage on a commercial property such as an office, shop, or warehouse. Commercial mortgages allow businesses to purchase the premises they currently rent, purchase a new location, release equity to reinvest into a business, refinance to get a better interest rate or reduced monthly repayments, or even to consolidate existing debts into a single, easy to manage payment.

Who can use a commercial mortgage?

A commercial mortgage can be used by a wide range of businesses and individuals, as long as they meet the lender’s criteria. Typically, they’re suitable for:

Limited companies
Partnerships, limited liability partnerships (LLPs)
Investors
Owner-occupiers, that is, businesses that want to buy the property they currently trade from
Sole traders – though options can be more restricted compared to other business structures.

What kinds of commercial mortgages are there?

There are a number of different types of commercial mortgages in the UK, depending on how the property will be used and who’s borrowing. They can be broadly broken down into three types:

Owner-occupied commercial mortgage – this is for a business buying a property to run its own operations from. For example, a café buying its premises. You’re both the borrower and the occupier
Commercial investment mortgage – for investors looking to purchase an investment property to rent out
Semi-commercial mortgages – used for mixed-use properties, such as a shop with a flat above it. Since the property is part commercial and part residential, it needs a specific type of mortgage.

What are the advantages and disadvantages of a commercial mortgage?

A commercial mortgage can be a powerful tool for business growth, but like any financial product, it comes with pros and cons. Let’s break these down:

Advantages

Build equity over time: instead of paying rent, your repayments go towards owning the property – it becomes a business asset
Lower interest than other types of finance: compared to unsecured loans or overdrafts, commercial mortgages often come with lower interest rates, especially for established businesses
Fix your monthly repayments: you can choose a fixed-rate deal, which helps you budget with confidence over the long term
Release equity: if the property’s value goes up, or you’ve paid down a chunk of the loan, you could remortgage to release cash to reinvest elsewhere in your business
Rental income (if it’s an investment property): if you’re buying to let, you’ll receive income from tenants, and hopefully potentially benefit from rising property values too.

Disadvantages

You’ll need a large deposit: this’ll likely need to be between 25% and 40% of the property’s value, tying up cash that could be used elsewhere
It’s a long-term commitment: they’re often long-term loans, from around five to 25 years, and will usually come with fees or penalties if you want to exit early
Property market risks: if property values fall, you could end up with negative equity and struggle to sell or refinance when needed
Often high upfront costs: such as valuation fees, legal costs, arrangement fees and possibly broker fees, which can all add up.

What are the alternatives to a commercial mortgage?

If a commercial mortgage isn’t quite the right fit for your business, don’t worry, there are alternative types of finance that may be more suitable. Some alternatives include:

Leasing or renting a commercial property: instead of buying, you simply lease the premises you operate from. There are lower upfront costs, it’s easier to move should your business need to, and the landlord will take care of maintenance and repairs. Some downsides include not building any equity, rents will likely rise over time, and you have less control over the property.
Unsecured or secured business loans: you borrow a lump sum and repay it over a set time. They’re quicker to arrange, the funds can be used for any purpose, and there’s no property at risk (for unsecured loans). However, these can have higher interest rates and the borrowing limit will likely be lower.
Bridging loans: short-term finance, often used when you need funds fast, such as buying at auction or while waiting for a mortgage to go through. You’ll get the funds much quicker, but again, higher rates and fees and aren’t a long-term solution.
Asset finance: used to fund specific business assets such as machinery, vehicles, or equipment rather than property.
Invoice finance: unlocks cash tied up in unpaid invoices, which may be useful if you’re waiting on customers to pay. They also help to improve cash flow but can be expensive if used long term.

What our expert says...

"Buying a property is a major decision that affects the long-term health of a business. Right now, interest rates are falling and some lenders have a higher risk appetite, making it easier and more affordable for buyers to get a deal. If you’re an SME owner and either would like to buy a property, or you’ve found it difficult in the past, you should get advice and check the numbers because these new changes could tip things in your favour. Find out now so that you’re able to act at the right time for your business."

- Andrea Reynolds, CEO & Founder of Swoop

Commercial mortgage FAQs

What are the interest rates on a commercial mortgage?

Interest rates on commercial mortgages vary widely depending on factors such as your credit history, the property type, loan size, and whether it’s for your own business or an investment. Rates typically start around 1.5 percentage points above base rate with high-street banks for low-risk deals, rising to 8% above base rate with niche lenders for higher-risk cases. As a rough guide at the time of writing:

Owner-occupied: 1.5%–5% above base rate
Investment: 2%–6% above base rate

Rates can be fixed or variable, and each deal is priced individually based on risk. A broker will help present your application to the right lenders and secure the most competitive terms.

What fees are involved?

Some typical commercial mortgage fees include:

Arrangement fee: charged by the lender for setting up the mortgage and will typically cost you between 0.5% and 2% of the loan amount. It can be added to the loan if needed.
Valuation fee: the lender will want a professional valuation of the property to make sure it’s worth what you’re paying (and what they’re lending against).
Legal fees: both you and the lender will need legal representation, and you’ll usually be expected to pay the lender’s legal fees as well as your own.
Broker fee: if you use a broker they'll charge a fee, usually around 1% of the loan. But this is sometimes paid by the lender as opposed to you, the borrower.

What’s the difference between a commercial mortgage and a home-buyer’s mortgage?

A commercial mortgage is for buying or refinancing a business property such as a shop, office, or warehouse, whereas a residential mortgage is for buying a home to live in. With commercial mortgages, you’ll usually need a bigger deposit (25–40%) and rates are higher, based on your business or rental income. Residential mortgages need smaller deposits (sometimes just 5%) and are based on your personal income, with lower interest rates.

Who can take out a commercial mortgage?

A commercial mortgage can be taken out by a range of borrowers, including limited companies, sole traders, partnerships, or investors. Whether you’re buying a property to run your business from, or investing in one to rent out, as long as you meet the lender’s criteria and can prove you can afford the repayments, you could be eligible.