How Does a Commercial Mortgage Work in the UK? Step-by-Step Guide

13 minute read

You know how quickly the numbers can stop stacking up when rents rise but your business still needs a stable base. A commercial mortgage is often the tool that turns “we should buy” into a realistic plan.

It is not just a bigger residential mortgage.

You are dealing with different underwriting, different security checks, and a much sharper focus on the property’s value, the lease, and your cash flow.

In this guide, I’ll walk you step-by-step from first checks through to valuation and formal offer, including loan-to-value ratio rules, interest rates, fees, what a mortgage calculator is good for, and how Revolution Brokers commercial mortgages can fit into the process.

Key Takeaways

• A commercial mortgage is a loan secured on commercial property, often as a first legal charge, and many deals start around £100,000 to £250,000 with specialist lenders, although minimums vary by lender and property type.
• Loan-to-value ratios are commonly in the 60% to 75% range, so a 25% to 40% deposit is a practical planning range once you include fees and taxes, especially for buy-to-let and mixed-use cases.
• Expect lenders to look beyond headline profit: you’ll usually need clear bank statements, accounts, tax evidence, the lease and tenants details (if it is an investment), plus a professional property valuation and an EPC.
• Budget for the full “all-in” cost: arrangement fees are often priced as a percentage of the loan, and you will also pay valuation and legal costs, with early repayment charges possible on fixed-rate products.

What is a commercial mortgage?

A commercial mortgage is a loan secured against a property that is being used for business purposes, such as a shop, office, warehouse, or a mixed-use building. You use it to buy, refinance, or raise funds against commercial property value, and the lender typically takes a first legal charge over the asset.

The biggest practical difference versus residential mortgages is the underwriting focus. A commercial lender leans heavily on the property’s market value, the lease terms, the quality of tenants (where relevant), and your ability to service the debt from trading income or rental income.

Regulation is also different. Most commercial mortgages for business purposes sit outside FCA mortgage rules, but mixed-use cases can move into FCA-regulated territory if the security includes a dwelling and meets the 40% “used as, or in connection with, a dwelling” test that appears in FCA definitions of a regulated mortgage contract.

In plain terms, if any part of the property is residential, you should treat regulation as a live issue from day one and ask your mortgage broker to confirm whether the loan is regulated or unregulated before you pay for valuation or legal work.

• Owner-occupied: your business trades from the premises (common for shops, surgeries, and light industrial units).
• Commercial investment (buy-to-let): you rely on tenants and lease income to service the mortgage loan.
• Semi-commercial or mixed-use: part commercial, part residential, often with tighter criteria and more detailed legal checks.

Commercial mortgages secure business premises and, in some cases, the rental income stream that comes with them.

Key features of a commercial mortgage

Commercial mortgages share a few familiar moving parts with residential borrowing, but the detail matters more. The lender sets pricing and terms using risk signals such as loan to value, property type, tenant profile, and the strength of your accounts and credit history.

Plan early for the non-rate items, because they shape the true cost of funding. You will usually see some combination of arrangement fees, valuation fees, legal fees, and early repayment charges, plus insurer requirements and lender conditions such as personal guarantees or extra collateral.

Energy efficiency can be a deal-maker or a deal-breaker, especially for investment property. In England and Wales, official landlord guidance under Minimum Energy Efficiency Standards says that from 1 April 2023 you generally cannot continue to let privately rented non-domestic property with an EPC below E unless a valid exemption is registered, so you should treat the EPC as underwriting evidence, not admin paperwork.

• Fees: ask for a fee schedule early, including arrangement fees, valuation costs, legal costs, and any exit or redemption fees.
• Security: confirm whether the lender wants a debenture, a personal guarantee, or extra property as collateral.
• Lease and tenants: a strong lease with a credible tenant often improves lending options and pricing.
• Use of funds: clarify whether you are buying, refinancing, remortgaging, or using funds for improvements.
• Bridging loans: useful for speed, but usually priced very differently to term lending, so treat them as short-term tools with a clear exit.

What are Loan-to-Value (LTV) ratios?

The loan-to-value ratio is the percentage of the property value that a lender will advance. If a lender offers 70% LTV on a £1,000,000 purchase, your maximum loan is £700,000 and you need to fund the rest, plus fees, from your own cash or equity.

In UK commercial mortgages, 60% to 75% LTV is a common working range, and the exact ceiling often depends on property type and whether the deal is owner-occupied or investment. For example, current lender criteria and product guides in the market show maximum LTVs around 70% for commercial investment, with some cases stretching to 75% where the risk profile is strong.

Do not focus on LTV alone. Many lenders also apply an interest cover ratio or debt service test based on rental income or business cash flow. One published set of criteria from Redwood Bank, for example, lists an interest cover ratio of 130% on some commercial investment products, which effectively caps the loan size even if your deposit is healthy.

• Action check: before you view properties seriously, run a mortgage calculator using a conservative interest rate and test whether your rent roll or trading profit still covers repayments with a buffer.
• Deposit reality: if you are targeting 75% LTV, plan your cash as if you might only get 65% to 70% once valuation, property condition, or tenant strength is factored in.
• Equity planning: for a refinance or remortgage, your future LTV depends on the new valuation and any changes to lease terms, not just what you originally paid.

How do fixed and variable interest rates differ?

A fixed-rate mortgage gives you a stable interest rate for an agreed period, so your repayments stay predictable. This can be helpful if your business relies on tight margins or you are planning capex and want certainty.

A variable rate mortgage can move, which means your monthly cost can rise or fall during the term. Many variable products track an external benchmark, and as of March 2026 the Bank of England lists Bank Rate at 3.75%, so you should always model what happens if that benchmark increases again.

Feature	Fixed-rate mortgage	Variable rate mortgage
Budgeting	Predictable repayments during the fixed period	Repayments can change, so cash flow needs more headroom
When it can suit you	Longer leases, stable tenant income, owner-occupied firms with fixed contracts	Shorter hold periods, early refinance plans, or when you expect rates to fall
Main watch-out	Early repayment and break costs can be significant	Rate shocks can hit affordability tests and rental cover ratios

If you want optionality, ask your broker whether the mortgage agreement allows part-fixed, part-variable structures, or whether you can switch products without punitive fees.

Steps to obtain a commercial mortgage

A clean commercial mortgage application is mostly sequencing. You confirm the numbers first, then you reduce surprises in underwriting by lining up documents, valuation readiness, and legal checks.

At a high level, you will move through eligibility and deposit checks, document preparation, decision in principle or heads of terms, valuation and underwriting, then a formal offer and completion.

• Step 1: set your target LTV and deposit, and include fees and taxes in your cash plan.
• Step 2: gather documents and resolve any obvious credit score issues before the lender runs searches.
• Step 3: pressure-test affordability using a mortgage calculator at stressed interest rates, not just today’s pay rate.
• Step 4: confirm the lease position, tenant profile, and EPC early, because these are common deal-stoppers.

How do I assess eligibility and deposit requirements?

You must be over 18, and the lender will check identity, address history, and the structure of the borrower, whether that is a limited company, LLP, partnership, or sole trader. If you are buying through a company, make sure Companies House details match what you will submit to the lender and solicitor.

Most lenders want evidence that the business can service the debt. In practice, that often means at least two years’ trading history for owner-occupied cases, or a strong, provable rental income profile for buy-to-let.

• Confirm the borrower structure: check directors, shareholders, and any changes to trading address or SIC codes, because mismatches slow underwriting.
• Build a deposit buffer: aim to have deposit plus fees accessible, not just “deposit on paper”, because valuation and legal costs land early.
• Get the lease story straight: if the property is leased, have the lease, rent schedule, and any side letters ready, and disclose breaks and rent-free periods.
• Know your exit: if you are using bridging loans to buy quickly, document your refinance plan clearly, including timing and works required.
• Be honest about existing debt: list business loans, unsecured loans, hire purchase, and leasing commitments, because lenders will treat them as fixed outgoings.

A pro-tip that saves time is to ask the lender or mortgage broker what their affordability stress rate looks like. Some lender criteria guides in the market show stress testing based on a margin above Bank Rate or a pay rate plus a buffer, and that can be the difference between a “yes” and a smaller loan.

What documents do I need to prepare?

Gather key papers early, and keep them consistent across your story. Underwriters spot gaps fast, and inconsistency is one of the easiest ways to trigger delays, extra conditions, or a decline.

• Bank statements: recent statements that show the deposit, ongoing cash flow, and any large transfers that need explaining.
• Accounts: certified accounts plus up-to-date management figures, so the lender can see trend as well as history.
• Tax position: relevant tax returns and VAT evidence, where applicable, to back up profit and turnover claims.
• Assets and liabilities: a clear schedule showing property, equipment, funds, hire purchase agreements, and any contingent liabilities.
• Forecasts: a simple cash flow forecast tied to realistic assumptions, especially if you are acquiring, refinancing, or changing use.
• ID and ownership: director and partner ID, proof of address, and details of any individuals providing funds or guarantees.
• Property pack: lease, tenancy agreements, rent roll, service charge information, and the EPC.

If any of the deposit comes from outside retained profits or personal savings, expect questions on source of funds. This is normal, and the Law Society and regulators have been clear that solicitors need to carry out customer due diligence and, in practice, source of funds checks are common in property transactions.

How do I submit an application and what credit checks are involved?

Submit your application with a single, consistent version of the numbers. Your turnover, net profit, retained cash, deposit, and existing debt should match across statements, accounts, and what you tell the broker and lender.

1. Choose your route: decide whether you are going direct to a bank or using a mortgage broker, and align on the target lender list before you pay for valuation.
2. Package the case: include a short cover note that explains the property, intended use, refinance goal (if any), and repayment strategy.
3. Prepare for credit scoring: lenders use credit reference agency data for both individuals and companies, so deal with errors early and disclose historic issues proactively.
4. Show affordability: include rental income evidence or trading cash flow proof, and show how repayments work under higher interest rates.
5. Complete ID and AML checks: expect electronic ID checks, anti-fraud screening, and questions about funds movement, especially if multiple accounts are involved.

The fastest applications are the ones that remove ambiguity. If you are refinancing, show the current mortgage loan terms, the reason for the re-finance, and what the new facility changes, whether that is term, rate of interest, or release of equity.

What happens during the property valuation and approval process?

The lender will order a valuation to confirm market value and saleability, and you pay valuation fees early. This is where reality meets spreadsheets, and it is also where issues like condition, access, lease complexity, and tenant risk tend to surface.

• Valuation instruction: the lender appoints a surveyor, and the report feeds directly into LTV and underwriting.
• Underwriting: the lender tests affordability, credit history, tenancy agreements, and security, then issues conditions to be satisfied.
• Legal due diligence: solicitors run title checks, confirm lease position, and review restrictions, rights of access, and any unusual clauses.
• Offer and completion: once conditions are cleared, you receive a formal offer, then solicitors handle completion and funds release.

It helps to know what “good” looks like. RICS sets out valuation standards in its Red Book, and RICS commentary on secured lending valuations makes the point that reputable lenders typically expect a report prepared by a RICS-qualified professional in line with current RICS valuation standards.

Keep one eye on the cost of exiting. If you choose a fixed interest product, ask for the early repayment charge schedule in writing and work out the pounds-and-pence impact before you sign, because those fees can be material even when the headline interest rate looks attractive.

Conclusion

A commercial mortgage can fund a purchase, a refinance, or improvements to business premises, but lenders will judge the deal on property value, loan-to-value ratio, affordability, and the quality of your documentation.

Terms often run for years rather than months, and the deposit is commonly a meaningful chunk of the price once you include fees.

Work with a conveyancer and a mortgage broker to keep the process moving, control risk, and choose the right mix of interest rates and lending options for your business.

FAQs

1. What is a commercial mortgage in the UK?

A commercial mortgage is a loan secured on commercial property, used to buy or refinance premises, and the lender takes a legal charge as security.

2. How do I get a commercial mortgage, step by step?

Prepare a clear business plan, check your finances and credit, and gather proof of income and the planned deposit. Ask a broker or approach a lender, get a valuation and survey, then the lender will assess loan-to-value, interest rate, term and repayment ability before making an offer. Agree fees, complete legal work and sign documents to reach legal completion.

3. What affects approval and the costs?

The lender looks at the property valuation, your business plan, loan-to-value, trading history and repayment capacity. You do not always need a long trading history, some lenders accept a strong plan and security, but expect higher fees or a larger deposit.

4. How do repayments and interest work on a commercial mortgage?

You can pay capital and interest or interest-only, and lenders offer fixed or variable interest rates over the agreed term. Early repayment charges and arrangement fees can raise total cost, so compare offers and read the legal terms.