Owner-occupied vs investment commercial mortgages
The first distinction to understand is whether the property is for your own business use or to let to other businesses as an investment. This affects how lenders assess affordability, what rates are available, and which lenders are appropriate.
Owner-occupied commercial mortgages
If you’re buying premises for your own business — an office, a workshop, a retail unit, a care home — the mortgage is assessed primarily on the financial performance of that business. Lenders want to see that the business generates sufficient income to service the mortgage comfortably, and that it’s likely to continue doing so.
The documentation required is different to residential lending: business accounts, management accounts, bank statements, and projections for newer businesses. Lenders may also want to understand the nature of the business, the lease arrangements if you’re occupying part of a larger building, and the security of the trading income.
Commercial investment mortgages
If you’re buying a commercial property to let out — an office building, a retail unit, an industrial unit — lenders assess affordability primarily on the rental income the property generates. The quality of the tenant, the length of the lease, and the strength of the rental covenant (how reliable the tenant is likely to be) all feed into this assessment.
A fully let commercial property with a long lease to a strong tenant is a very different proposition to a vacant unit or one with a short lease and an uncertain occupier. Lenders price this difference accordingly.
Semi-commercial and mixed-use properties
A significant proportion of commercial mortgage enquiries involve properties that aren’t purely commercial — a ground floor retail unit with residential flats above, for example, or a pub with a manager’s flat. These are called semi-commercial or mixed-use properties and they occupy a middle ground between residential and commercial lending.
Not all lenders will consider them. Those that do assess the commercial and residential elements separately, looking at both the rental income from the commercial space and the residential income or value from the flats. The mix of the two — what percentage is commercial vs residential — affects which lenders are available and what rates apply.
If you’re looking at a mixed-use property, it’s worth getting specialist advice early. The wrong lender selection can significantly delay a transaction or result in less competitive terms.
Property types — what lenders will and won’t consider
Commercial lenders have very different appetites for different property types. Some are mainstream and widely accepted; others attract a limited lender pool and specific requirements.
- Offices — mainstream, generally well accepted by commercial lenders
- Retail units — accepted, though high street retail has faced more scrutiny in recent years given changing patterns
- Industrial and warehousing — generally well regarded, strong tenant demand supports valuations
- Pubs and restaurants — a specialist area; lenders focus heavily on the trading track record and the strength of the operator
- Healthcare and care homes — a growing sector with specialist lenders who understand the regulatory and operational context
- Petrol stations — specialist, with limited lender appetite and specific environmental requirements
- Hotels and hospitality — highly dependent on trading performance; lenders scrutinise income carefully
If the property type is unusual or specialist, it’s worth having a conversation before instructing solicitors or paying for a survey.
Deposits and loan to value
Most commercial mortgage lenders require a minimum deposit of 25–30% of the purchase price, giving a maximum loan to value of 70–75%. For more specialist or higher-risk properties — short leases, single-tenant risk, operational businesses — lenders may require a larger deposit.
As with residential and buy-to-let lending, a larger deposit generally means access to better rates and a wider range of lenders. It also gives you a buffer if the property value changes over time.
Interest rates and terms
Commercial mortgage rates are typically higher than residential rates, reflecting the additional complexity and risk. They can be fixed or variable, and terms typically range from 5 to 25 years, though shorter-term lending is also available.
Unlike residential mortgages, commercial deals are often negotiated rather than off-the-shelf. The rate you’re offered depends on the property, the tenant covenant, the borrower profile, the loan size, and the lender’s current appetite for that type of business. This is one of the areas where having a broker who knows which lenders are active and competitive in a given sector makes a real difference.
Commercial mortgage rates are not always published. Many lenders price deals individually, which means the market isn’t transparent in the way the residential market is. A broker can access pricing across multiple lenders simultaneously, rather than you approaching each one individually.
Costs — what to budget for
Commercial mortgage transactions involve more costs than residential ones. Budget for:
- Arrangement or facility fee — typically 1–2% of the loan amount
- Valuation fee — commercial valuations are more expensive than residential, often £1,500–£5,000 or more depending on the property
- Your legal fees — commercial conveyancing is more involved than residential
- The lender’s legal fees — unlike residential mortgages, you typically pay both sides of the legal work in commercial transactions
- Stamp Duty Land Tax — commercial SDLT rates differ from residential; specialist properties like mixed-use have their own rules
We always factor these into the overall cost picture so you’re not surprised after you’ve committed to a transaction.
Tell us about the property and the business case and we’ll tell you what’s realistic. Call 01277 564 054.
Our fees for commercial mortgage advice
No charge for initial conversations or an initial assessment of the case. A broker fee will apply depending on the complexity and size of the transaction — always confirmed and agreed clearly before you commit to proceeding. See our full fee schedule.
Frequently asked questions
A commercial mortgage is a loan secured against a commercial property — offices, retail units, warehouses, pubs, restaurants, or similar. Used to buy property for your own business or as an investment let to other businesses.
For owner-occupied properties, affordability is based on the trading performance of the business. For investment properties, the primary consideration is the rental income generated. Personal income plays a secondary role.
Most lenders require 25–30% minimum. Specialist property types or higher-risk sectors may attract larger requirements. A stronger deposit generally means better rates and more lender choice.
Yes. Semi-commercial or mixed-use mortgages cover properties combining residential and commercial elements — a shop with a flat above, for example. Lenders assess these differently to pure residential or pure commercial.
Typically six to twelve weeks from application to completion, depending on the lender, the property type, and the legal work involved. More complex transactions can take longer.
No charge for initial conversations. A broker fee will apply depending on the size and complexity of the case — always confirmed clearly before you proceed.