Two kinds of commercial mortgage
How commercial lenders stress test
Every commercial lender asks the same question: if rates rise, can the income still pay the loan? How they test it depends on where the income comes from.
| Owner-occupied | Investment (let) | |
|---|---|---|
| Income tested | Business profits (EBITDA, with add-backs) | Rent from the tenants |
| Test | Debt service cover: profits cover the yearly capital and interest, typically 1.25–1.5 times | Interest cover: rent covers the interest, typically 125–150%, higher for weaker tenants |
| Stress rate | The pay rate plus a margin, or a floor rate, whichever is higher | The pay rate plus a margin, or a floor rate; longer fixes are often tested nearer the pay rate |
| Existing debt | Other business loans, leases and finance count against the profits | Usually just this loan |
| Max LTV | Up to 80% for strong, profitable businesses | Up to 75% |
Because many commercial loans are on capital repayment over 15–25 years, the test often covers the capital as well as the interest. That's why a commercial loan can be limited by the income even at a modest LTV.
Commercial mortgage rates: what sets them
Commercial mortgage rates are priced case by case. A strong owner-occupied deal at 50–60% LTV can price close to the best buy-to-let rates. A vacant, specialist or heavily leveraged property costs noticeably more. The main factors are:
- Loan to value: most lenders go to 70–75%, and up to 80% for profitable owner-occupiers. The lower the LTV, the better the rate.
- Property type: offices, retail, industrial, mixed-use and semi-commercial, leisure, or specialist uses such as care homes and hotels.
- Income: the trading accounts for owner-occupiers, or the tenant's covenant and lease length for investment property.
- Borrower: experience, credit history and other assets.
- Fixed or variable: many commercial loans track Bank Rate plus a margin, and fixes of 2–10 years are widely available.
Semi-commercial and mixed-use
A shop with a flat above, or offices with residential upstairs, is usually treated as semi-commercial. Specialist lenders go to 75% LTV on these, and they often price better than pure commercial property. For the residential part, see the buy-to-let mortgage calculator.
Why use a commercial mortgage broker?
Commercial lending isn't priced on a public rate table. Lenders set terms deal by deal, and many specialist lenders only work through brokers. We know which lenders take which property types and how each one stress tests the income, and we package the case so it's credit-ready. That usually means a better rate or a bigger loan than approaching a bank directly. You can also browse live products on our sourcing tool.
Frequently asked questions
What are commercial mortgage rates in the UK?
They're priced individually. Strong owner-occupied or well-let investment cases at modest LTVs get the keenest rates, while higher LTVs, vacant or specialist property cost more.
How much deposit do I need for a commercial mortgage?
Usually 25–30%. A profitable business buying its own premises can borrow up to 80%, so 20% down, and additional security can sometimes reduce the deposit further.
How do commercial lenders stress test?
Owner-occupiers are tested on business profits covering the yearly capital and interest, typically 1.25–1.5 times. Investment property is tested on the rent covering the interest, typically 125–150%, at a stressed rate.
Can I get a commercial mortgage for a new business?
It's harder, but possible with a strong deposit, relevant experience, a solid business plan or additional security. Specialist lenders are often more flexible than high-street banks.
How long is a commercial mortgage term?
Typically 3 to 25 years, and some lenders go to 30. Interest-only periods are more common on investment property.
Is a commercial mortgage regulated?
Usually not. It becomes regulated if you or a close family member will live in 40% or more of the property.