Commercial mortgages explained

A commercial mortgage is a loan secured on a commercial property such as a warehouse, an industrial unit, an office or a shop. We arrange this type of finance for businesses that want to buy the premises they trade from, and for investors who want to hold commercial property and let it to tenants. Because the loan sits against bricks and mortar rather than a person's home, a commercial mortgage works differently from a residential mortgage, and the way a lender assesses the deal, sets the rate and fixes the term reflects that difference. We are a finance arranger and introducer, not a lender, so our role is to read your circumstances, understand the property and place your case with the lender most likely to fund it on sensible terms.

This guide explains what a commercial mortgage is, how much deposit you are likely to need, which properties qualify, who provides the funding, what the application process looks like and what a lender will ask you to evidence. We have written it for owner-occupiers buying their first warehouse and for investors adding to a portfolio, and we have kept the language plain. Throughout, we point out where a commercial mortgage might be the right tool and where a different product, such as bridging or a longer term loan, could suit you better. The aim is that by the end you can hold a confident conversation with us, with a broker or with a lender about funding a commercial purchase.

What exactly is a commercial mortgage?

A commercial mortgage is a loan secured on a commercial property and repaid over an agreed term, usually somewhere between five and twenty-five years. The lender registers a legal charge over the building, which means the property acts as security. If the borrower stops paying, the lender can ultimately take possession and sell the asset to recover the debt. That security is why a commercial mortgage normally carries a lower rate than an unsecured business loan of the same size, and why a lender is willing to advance a large sum against a single property.

There are two broad uses, and the distinction matters because it changes how a lender underwrites the deal. An owner-occupier commercial mortgage funds premises that your own business will trade from, so the lender looks closely at the trading accounts of that business. A commercial investment mortgage funds a property you intend to let, so the lender looks at the rental income the tenant pays and at the strength of the lease. Both are still a commercial mortgage, but the questions a lender asks, and the rate it offers, flow from which of the two you are doing.

It helps to anchor the vocabulary early. The loan to value, often shortened to LTV, is the size of the loan expressed as a percentage of the property valuation. The deposit is the cash you contribute, which is simply the gap between the loan and the purchase price. The term is the number of years over which you repay. The rate is the cost of borrowing, charged on the outstanding balance. We use these terms throughout because every commercial mortgage offer you receive will be built from them.

One more point of contrast is worth making at the start. A residential mortgage is a fairly standardised product, where a lender plugs your income into an affordability calculator and produces a fairly predictable answer. A commercial mortgage is closer to a bespoke piece of underwriting, where the lender weighs the property, the business, the rental income and the loan to value together and reaches a judgement. That means two borrowers buying similar warehouses can be offered very different terms, and it is why the choice of lender, and the way your case is presented, has such a large effect on the rate and the loan to value you achieve.

How much deposit do you need for a commercial mortgage?

Most lenders want a deposit of between twenty-five and forty percent of the property value, which means a commercial mortgage typically funds sixty to seventy-five percent loan to value. So on a warehouse valued at four hundred thousand pounds, expect to put in roughly one hundred to one hundred and fifty thousand pounds of your own money. Owner-occupiers can sometimes stretch the loan to value higher, occasionally to eighty percent, because the lender takes comfort from the trading business behind the purchase. Investment deals tend to sit at the more cautious end because the lender is relying on rental income rather than your own trade.

The deposit is not the only cash you need at the outset. A lender will charge an arrangement fee, often one to two percent of the loan, and you will pay for a valuation, for legal work on both sides and usually a broker fee. Stamp duty land tax applies to commercial property too. We always model the full cash requirement with you before you commit, because a deposit that looks affordable can become tight once fees, valuation costs and tax are added. Knowing the true figure early stops a deal stalling at the wrong moment.

If the deposit is the obstacle, there are levers to pull. Putting more rental income or trading profit into the case can persuade a lender to lift the loan to value. Additional security, such as a second property, can reduce the deposit needed on the property you are buying. In some situations a short bridging facility raises the deposit quickly and is then repaid when the longer commercial mortgage completes. We talk through these routes rather than treating a high deposit as a fixed barrier.

Which properties qualify for a commercial mortgage?

A warehouse is a commercial property used for storage and distribution, and it is one of the most fundable asset types in the market, so it sits comfortably within commercial mortgage lending. The same is true of an industrial unit, a trade counter, a logistics shed, an office, a retail shop and a mixed-use building with commercial space on the ground floor and flats above. That last category, often called semi-commercial, is funded by a commercial mortgage rather than a residential one because part of the property is commercial.

Lenders look at the quality and adaptability of the building as much as its use. A modern warehouse with good eaves height, level access and a strong location near motorways is easy to value and easy to re-let, so a lender funds it readily. An older industrial unit in a weak location, or a highly specialised building that only one type of occupier could use, is harder to value and a lender may offer a lower loan to value or a higher rate to reflect that risk. The valuation a lender commissions will reflect both the current condition and the likely demand from future tenants.

Where a property is part commercial and part residential, or where you live above the premises, the regulatory picture changes. A commercial mortgage to an individual that is partly secured on their own dwelling can fall under regulated lending, while a loan to a limited company on a pure warehouse is normally unregulated. We flag which side of that line your purchase sits on, because it affects which lenders can act and what protections apply.

Who provides commercial mortgages in the UK?

Three broad groups of lender provide commercial mortgages, and each has a different appetite. High-street banks such as NatWest, Barclays, HSBC and Lloyds fund commercial property, and they tend to offer the keenest rates to established businesses with clean accounts and a clear story. They can be slower and more conservative, and they often prefer to lend where there is an existing banking relationship. For a straightforward owner-occupier buying a sound warehouse, a high-street bank is frequently the cheapest home for the loan.

Specialist banks, including names such as Allica and Shawbrook, sit alongside the high street and focus on commercial property lending. They are usually more flexible on the shape of a deal, more willing to look at complex trading histories and quicker to give an answer, in exchange for a rate that is a little higher than the cheapest high-street offer. Non-bank lenders, funded by institutional money rather than deposits, occupy the most flexible end of the market and will consider cases that banks decline, again at a higher rate.

This spread is exactly why working through an arranger pays off. We see which lender is currently funding warehouses at a sensible loan to value, which has paused, which is quick and which is cheap. Rather than you applying to one bank, being declined and starting again weeks later, we read the market and place your case once with the lender most likely to say yes. We earn our fee by widening the field of lenders you reach, not by lending to you ourselves.

It is also worth knowing that the cheapest commercial mortgage on paper is not always the one a particular lender will actually write. A high-street bank may advertise a low rate but apply tight criteria that exclude a warehouse with a short lease or a business with a single strong year of accounts. A specialist lender may quote a slightly higher rate yet fund the same deal without fuss. Matching the property and the borrower to a lender whose criteria genuinely fit is the part of arranging a commercial mortgage that saves the most time and avoids wasted valuation and legal cost on an application that was never going to complete.

How does the commercial mortgage application process work?

The process starts with an agreement in principle. We gather the basics, the property, the price, your deposit, your accounts and your plan, and approach a lender for an indicative decision. This is not a binding offer, but a serious lender will tell you the likely loan to value, the rate and the broad terms, which lets you make an offer on the property with confidence. Getting this stage right saves time later, because we are only approaching lenders whose criteria your deal actually fits.

Once your offer is accepted, the lender instructs a formal valuation. A surveyor inspects the property and reports its market value and, for an investment case, its rental value. The valuation underpins the whole loan, because the lender lends a percentage of that figure rather than the price you agreed. If the valuation comes in below the purchase price, the loan shrinks and your deposit has to grow, so we manage expectations on this carefully and choose lenders whose valuers know the relevant market.

After a satisfactory valuation the lender issues a formal mortgage offer, solicitors handle the legal work and the charge is registered, then funds are released and the purchase completes. From agreement in principle to completion, a commercial mortgage usually takes between six and twelve weeks, longer than a residential purchase because of the extra underwriting. Where a deadline is tight, for example an auction purchase, bridging can complete the buy quickly and the commercial mortgage then replaces it once there is time to do the full process properly.

What information do commercial mortgage lenders require?

A lender wants to understand three things: the property, the borrower and the ability to repay. On the property, it needs the address, the price, the use and details of any lease and tenant if it is an investment. On the borrower, it needs to know who is buying, whether that is you personally, a partnership or a limited company, and the experience and track record behind the purchase. A clear, short business plan that explains why you are buying and how the building fits your strategy carries real weight with an underwriter.

On ability to repay, the evidence is financial. For an owner-occupier the lender wants two or three years of business accounts, recent management figures, bank statements and often projections showing the property costs less to own than to rent. For an investment purchase the lender focuses on the rental income, testing that the rent comfortably covers the mortgage payment with a margin to spare, a calculation usually expressed as a debt service cover ratio. A strong lease to a reliable tenant on a long term makes an investment case much easier to fund.

Lenders to a limited company will normally ask the directors for a personal guarantee, which means the directors stand behind part of the debt if the company cannot pay. This is standard rather than alarming, but it is worth understanding before you sign. We make sure you know what you are agreeing to, including the size of any guarantee, the rate, the repayment profile and any early repayment charge, so that the commercial mortgage you complete is one you have entered with open eyes.

How are commercial mortgage rates and repayments set?

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, so the cost moves with the wider market. The exact rate you are offered depends on the loan to value, the strength of the borrower, the quality of the property and whether the loan is owner-occupied or investment. Lower loan to value, a strong trading business and a modern warehouse all push the rate down. A higher loan to value, thin accounts or a specialised building push it up.

Repayment comes in two main shapes. A capital and interest repayment mortgage clears both the interest and a slice of the loan each month, so the balance falls steadily and the debt is gone at the end of the term. An interest-only mortgage covers just the interest, keeping monthly payments lower but leaving the full balance outstanding, which you must repay at the end through sale, refinance or accumulated funds. Investors often prefer interest-only to protect cash flow, while owner-occupiers frequently choose repayment to own the building outright in time.

For market context, prime industrial yields have held broadly stable at around 5.00 to 5.25 percent, according to Knight Frank in December 2025, which is one reason lenders remain comfortable funding good warehouse and industrial stock. Stable yields and steady rental income make repayments more predictable, and predictability is what a lender prices. When you compare offers, look past the headline rate to the full cost over the term, including the arrangement fee, the valuation, the repayment profile and any early repayment charge, because the cheapest rate is not always the cheapest deal.

Is a commercial mortgage right for your business?

A commercial mortgage suits you when you intend to hold a property for the medium to long term, whether to trade from it or to let it for rental income. Buying rather than renting turns a monthly outgoing into an asset you own, fixes your accommodation cost against rising rents, and can leave you with a valuable property and no debt at the end of the term. For a growing business that is confident in its location, owning the warehouse it operates from is often a sound long-term move, and the monthly repayment can be similar to or lower than the rent it replaces.

It is less suitable when your need is short term or your plans for the property are uncertain. If you expect to sell or refinance within months, a commercial mortgage with its arrangement fee and possible early repayment charge is an expensive way to bridge a gap, and a short bridging facility or a different term loan may cost less overall. Equally, if your trading figures are not yet strong enough to evidence repayment, it can be worth waiting a year, building the accounts and then borrowing on better terms.

Our job is to help you make that judgement clearly. We model the cost of owning against the cost of renting, we test the deposit and fees against your available cash, and we look at whether a commercial mortgage, bridging or a remortgage of an existing property is the cleanest route to your goal. Because we are an arranger and not a lender, we have no reason to push one product over another. We simply want the funding to fit, so the property works for you rather than the other way round.

If a commercial mortgage is the right answer, the next step is simply to talk it through. Tell us the property, the price, the deposit you have available and what the building is for, and we will give you a realistic view of the loan to value, the likely rate and the lenders worth approaching. We would rather have that conversation before you commit to a purchase than after, because the earlier we understand the deal, the more we can do to shape it into a commercial mortgage that completes smoothly and on terms you are comfortable repaying for years to come.