Commercial mortgage rates explained

A commercial mortgage rate is the interest charged by a lender on a loan secured against a commercial property. It is the single number most borrowers fixate on, and rightly so, because over a long term even a small difference in the rate compounds into a large difference in the total cost. We arrange commercial mortgages across the UK, and as an introducer rather than a lender we take your case to the market and compare what each lender will price, so you see the real rate available rather than a headline figure aimed at the strongest borrower.

This guide explains how commercial mortgage rates are set in 2026, what a typical rate looks like for owner-occupier and investment lending, how a fixed rate differs from a variable one, and what happens when a fixed period ends. We also answer the questions borrowers ask most often, including what counts as a good interest rate and how the size of the deposit moves the price. The aim is to give you a grounded picture before you apply, because the rate you are quoted depends as much on how the case is presented as on the property itself.

What rate should you expect on a commercial mortgage?

A commercial mortgage rate is usually quoted as a margin over a reference rate, most often the Bank of England base rate or a swap rate, plus the lender's own margin. In 2026 a typical commercial mortgage rate for a sound owner-occupier deal sits broadly in the region of 6.5 to 8.5 percent, with stronger cases priced towards the lower end and weaker or more specialist cases towards the higher end. There is no single advertised rate the way there is on a residential mortgage, because every commercial mortgage is priced on its own merits.

The reason for the range is that a commercial mortgage rate reflects risk, and risk varies enormously from one deal to the next. A lender prices the property type, the strength of the borrower, the loan to value, the lease or trading income behind the loan, and the term. A modern warehouse on a strong covenant will attract a sharper rate than a tired retail unit with a short lease. Because the price is built up case by case, the rate you actually secure depends on getting the proposal in front of the lenders most comfortable with your particular asset, which is the part of the job we handle. A bank that already holds your business account will quote a rate, but it is rarely the sharpest, and comparing the market like for like is the only reliable way to know whether an offer is competitive.

It helps to read the rate alongside the fees rather than alone. An arrangement fee, a valuation fee and legal costs all add to the true cost of the loan, and a deal with a low headline rate but a heavy arrangement fee can work out dearer than a higher-rate alternative with modest fees. We compare the total cost across the market so the cheapest rate on paper is not mistaken for the cheapest loan.

The term of the loan also feeds into the rate picture. A shorter fixed period usually carries a lower rate than a longer one, because the lender is committing for less time, but it brings the reversion or remortgage decision around sooner. A borrower weighing a two-year rate against a five-year rate is really weighing certainty against cost, and the right call depends on how stable the business is and how the borrower reads the direction of the base rate. We set out these options side by side so the choice is made on the full picture rather than the opening number.

How does a fixed rate differ from a variable rate?

A fixed rate holds the interest rate steady for an agreed period, commonly two, three or five years, so the monthly repayment is known and does not move if the base rate changes. This certainty is the main appeal: a borrower who wants predictable outgoings and is budgeting tightly will often value a fixed rate even if it starts a touch higher than the variable alternative. The trade-off is that an early repayment charge usually applies if you redeem or refinance the commercial mortgage during the fixed period.

A variable rate moves with its reference rate, most often tracking the Bank of England base rate by a set margin. When the base rate falls, the repayment falls with it, and when the base rate rises, the repayment rises too. A variable rate can start lower than a fixed rate and rewards a borrower who can absorb movement in the monthly cost, but it carries the risk that the interest rate climbs and the repayment becomes harder to service. The right choice turns on how much certainty the business needs and how exposed its cash flow is to a rise.

Some lenders offer a discount off their standard variable rate for an introductory period, and others offer a capped rate that moves but cannot pass a ceiling. We weigh the fixed and variable options for each borrower against the term they want and the way their income behaves, because the cheaper rate today is not always the cheaper rate over the life of the commercial mortgage.

There is no single right answer between fixed and variable, only the right answer for a given borrower at a given time. A business with tight margins and little room to absorb a rise will usually favour the certainty of a fixed rate, while a borrower with strong cash flow and a view that rates may fall might prefer a variable rate and the saving it can bring. The decision also interacts with how long the borrower expects to hold the property, since an early repayment charge on a fixed deal can bite if the building is sold or refinanced mid-term. We talk through these scenarios so the choice fits the plan, not just the headline rate on the day.

Which factors push your interest rate up or down?

The loan to value is the most powerful lever on the rate. A borrower putting down a larger deposit and borrowing at sixty percent loan to value will almost always be offered a lower interest rate than one stretching to seventy-five percent, because the lender's exposure is smaller and the cushion against a fall in value is larger. Reducing the loan to value is the most direct way a borrower can buy a sharper rate, and we model the trade-off between the deposit and the rate before approaching the market.

The income behind the loan matters just as much. On an owner-occupier commercial mortgage the lender looks at the trading profit of the business that occupies the building, and on an investment commercial mortgage it looks at the rent the tenant pays and the strength of that tenant. A long lease to a strong covenant supports a lower rate because the rental income is dependable. A short lease, a weak tenant or thin trading accounts will push the rate up, because the lender prices in the chance that the repayment becomes difficult.

The property itself and the borrower's profile complete the picture. A standard, easily sold asset such as a modern industrial unit attracts keener pricing than an unusual or specialist building that is harder to resell. A clean credit history, sector experience and a clear repayment plan all help. None of these factors works in isolation, and the rate is the lender's judgement on all of them together, which is why two superficially similar deals can be priced quite differently.

What is a good interest rate on a commercial mortgage?

A good interest rate is one that is competitive for the risk your particular deal presents, not simply the lowest number you have seen quoted somewhere. Because commercial mortgages are priced individually, the right benchmark is what the market will offer a borrower with your loan to value, your property type and your income, rather than a single advertised figure. In the current market a strong owner-occupier securing a rate near the lower end of the 6.5 to 8.5 percent band is doing well, while a more specialist case settling higher is not necessarily being treated harshly.

The way to know whether a rate is good is to test it across several lenders rather than accept the first offer. A bank that already holds your business account will quote a rate, but it is rarely the only option and seldom the sharpest. We approach a panel of lenders with the same proposal so the rates can be compared like for like, which is the only reliable way to tell a fair offer from a lazy one.

Remember too that the cheapest rate is not always the best deal. A slightly higher rate with flexible early repayment terms, or with the term and structure your business actually needs, can be worth more than a marginally lower rate that locks you in or comes loaded with fees. We weigh the rate, the fees and the terms together so the loan fits the plan as well as the budget.

What happens when a fixed rate term ends?

When a fixed rate period ends, the commercial mortgage usually reverts to the lender's standard variable rate, which is often higher than the rate the borrower has been paying. This reversion can lift the monthly repayment noticeably, so the end of a fixed period is a moment to act rather than drift. The borrower has not reached the end of the loan, only the end of the agreed rate, and the balance continues on whatever rate applies next.

At that point a borrower has three broad choices. They can let the loan move to the variable rate and accept the new cost, they can ask the existing lender to agree a new fixed rate, often called a product transfer, or they can remortgage to a different lender offering better terms. A remortgage can secure a lower rate, release equity, or change the term, and it is worth comparing even where the current lender offers a renewal, because loyalty is rarely rewarded with the keenest price.

We treat the end of a fixed period as a planning point rather than an afterthought, and we start the review well before the rate expires so there is time to arrange a remortgage if the market offers something better. Acting early avoids the months on an expensive standard variable rate that catch out borrowers who leave it too late.

It is worth knowing that a remortgage at the end of a fixed period is treated by lenders much like a fresh application. The new lender will want an up-to-date valuation, recent accounts or rental evidence, and confirmation that the loan still fits its criteria. Where the property has risen in value or the business has strengthened, the borrower may qualify for a lower loan to value and therefore a sharper rate than first time around, so the review is an opportunity as well as a deadline. Where values have softened, planning ahead gives room to address it rather than be forced onto the reversion rate.

How do owner-occupier and investment rates compare?

Owner-occupier and investment commercial mortgages are priced on different income, so their rates can differ even on the same building. An owner-occupier rate is built on the trading profit of the business that occupies the premises, and lenders often view a successful trading business in its own building as a sound risk, which can support competitive pricing where the accounts are strong. The business gains the security of fixed premises and protection from rising rents, and the lender takes comfort from a borrower with a direct stake in the property's use.

An investment commercial mortgage rate rests on the rent a tenant pays and the strength of that tenant. Here the lender prices the lease length, the covenant of the tenant and the resilience of the rental income, applying an interest cover test to confirm the rent comfortably exceeds the mortgage interest. A modern warehouse let to a strong logistics tenant on a long lease can attract a keen investment rate, because the income is dependable, while a short lease or a weaker tenant pushes the rate up to reflect the greater chance of a void.

Neither route is automatically cheaper, because the rate follows the strength of the income behind it rather than the label on the loan. A thriving owner-occupier can beat a marginal investment case, and a prime investment let can beat a struggling owner-occupier. We assess which structure presents the deal at its strongest, then take it to the lenders who price that profile most keenly, so the borrower is not paying for risk the case does not actually carry.