Commercial Loans Interest Rates: What UK Developers Pay

Commercial loan interest rates are the cost of borrowing money secured against a commercial asset or used to fund a commercial purpose — expressed as a percentage of the outstanding loan balance. Unlike residential mortgages, which operate within a tightly standardised market, commercial rates are individually priced for each deal based on the asset, the borrower, and the lender's risk appetite at that moment in time.

For UK property developers and investors, commercial lending covers a broad spectrum: from long-term commercial mortgages on trading premises or investment properties, through to short-term bridging loans and specialist development finance for ground-up construction. Each product carries a different rate structure, and understanding the distinctions is essential before approaching any lender.

Rates are typically expressed in one of two ways. Long-term products — commercial mortgages and term loans — quote an annual percentage rate (p.a.), usually presented as a fixed percentage or as a margin above the Bank of England base rate. Short-term products — particularly bridging loans — quote a monthly rate (p.m.), which must be annualised carefully when comparing across product types. A bridging loan at 0.85% p.m. equates to approximately 10.2% p.a. before compounding, a figure that looks very different on a product comparison sheet.

Most commercial lenders offer both fixed and variable rate options, each with distinct risk profiles. The right choice depends on your exit strategy, the length of your hold, and your appetite for payment certainty.

When the fixed rate period ends, most commercial lenders revert the loan to their standard variable rate (SVR), which is typically higher than the initial deal rate. Borrowers who do not refinance at this point can find their debt servicing costs rise materially. Building a refinance review into your business plan at the outset avoids this outcome.

For development projects with a defined build and sale timeline, a fixed-rate commercial mortgage is rarely the most appropriate product. Short-term instruments price differently and are usually drawn down progressively rather than in full on day one, which changes how interest accrues. See our guide to development finance vs bridging loans for a detailed product comparison.

Lenders price commercial loans using a combination of macro factors — principally the Bank of England base rate — and deal-specific variables. Understanding what drives your rate allows you to structure applications in a way that minimises pricing before you approach the market.

• Loan-to-value (LTV): The single most influential pricing variable. Most commercial lenders will advance up to 70–75% LTV on standard commercial property; lower LTV attracts keener rates because the lender's security position is stronger in a downside scenario.
• Asset type and quality: Standard commercial assets — offices, retail units, industrial units — are priced more favourably than specialist or higher-risk assets such as hotels, care homes, or development sites. Mixed-use and semi-commercial property sits between the two extremes.
• Borrower covenant strength: Personal guarantees, credit history, trading performance (for owner-occupied premises), and net asset position all feed into the credit assessment. A strong borrower covenant consistently unlocks finer pricing.
• Loan size: Smaller loans (under £250,000) are often priced at higher margins than larger facilities, reflecting the fixed cost of underwriting relative to income. Above £1M, specialist and challenger lenders compete more aggressively for good quality deals.
• Term and repayment profile: Longer terms up to 25 years spread repayment but increase the lender's exposure to interest rate movements. Interest-only periods, where no capital is repaid, command a premium on some products.
• Tenancy and income profile: For investment properties, the quality, length, and diversification of rental income directly influences pricing. A property let on a long lease to a strong covenant tenant attracts better terms than one with a short-term or partially vacant element.

The table below shows indicative rate ranges across the main commercial lending products available to UK property investors and developers. These are market-wide figures based on publicly available lender rate information; individual deals are priced according to the factors described above and will vary accordingly.

Rates across all categories move broadly in line with the Bank of England base rate. When base rate rises, lenders pass this through to variable-rate products within their pricing cycle. Fixed-rate products insulate borrowers during the agreed term but carry a premium that reflects the lender's cost of hedging that interest rate risk. Specialist products such as auction finance (short-term bridging designed to meet 28-day auction completions) and joint venture finance (where the lender takes a profit share in place of market-rate interest) sit outside these standard ranges and are priced case by case.

Headline rates published by lenders represent best-case pricing — the deals where LTV, covenant strength, and asset quality are all optimal. In practice, lenders operate wide pricing bands and the rate on your deal depends on how your application is structured and which lenders you approach. For further context on how lender appetite varies by institution type, see our guide on bank vs specialist development finance.

The interest rate is the largest single cost, but it is rarely the only one. Commercial borrowing involves a range of additional fees that must be modelled into your appraisal before committing to a facility. Comparing products on rate alone without accounting for fees can lead to the wrong decision.

• Arrangement fee: Typically 1–2% of the loan amount, charged on drawdown. This is effectively an upfront interest charge and should be included in your annualised cost of borrowing calculation.
• Valuation fee: The lender will instruct a RICS-qualified surveyor to value the security property. Fees vary with asset size and complexity — expect £1,500–£5,000 or more for a standard commercial property; specialist or larger schemes carry higher fees.
• Legal fees: Both the lender and borrower incur separate legal costs. For commercial mortgages, combined legal costs of £3,000–£8,000 are common on smaller facilities; complex transactions involving multiple assets or SPV structures sit materially higher.
• Exit fee: Some bridging and development finance products include an exit fee of 0.5–1.5% of the loan or the gross development value. This is not universal but must be identified and quantified at heads of terms stage before proceeding.
• Broker fee: A whole-of-market broker typically charges 1–1.5% of the loan, payable on completion. On larger or more complex facilities, fee levels are frequently negotiated as part of the overall engagement.

When comparing products, convert all costs into an annualised effective rate or a total cost of credit figure for the expected hold period. A facility with a marginally higher headline rate but lower arrangement and exit fees can be cheaper in aggregate over a short project. For development finance, where interest is typically retained or rolled up into the loan rather than paid monthly, the compounding effect of a higher rate over an 18-month build programme can materially reduce net profit. Model this carefully in your development appraisal — our guide on GDV vs market value covers the appraisal mechanics in detail.

For senior debt stacking alongside mezzanine, the blended cost of the combined facility — not the individual rates in isolation — is the relevant figure. Understanding how the two layers interact on cost is essential to assessing whether stretching LTV via mezzanine improves or erodes your overall equity return. See our comparison of senior debt vs mezzanine finance for a full treatment of blended cost analysis.

The commercial lending market is not transparent in the way residential mortgage markets are. Lenders do not publish binding rate cards, and the rate you receive depends on how your application is positioned and which lenders you approach. The following steps consistently deliver better outcomes for borrowers across our 25+ years in property finance.

First, maximise your equity contribution where commercially viable. Every point of LTV reduction typically translates into lower pricing. If you have flexibility on how much equity you deploy, model the impact: a reduction in LTV from 75% to 65% on a £2M facility at 7% vs 6.25% saves £15,000 per year in interest — meaningful on any development appraisal.

Second, prepare a professional credit pack before approaching lenders. Lenders form their initial impression of risk from the quality and completeness of your information. A well-structured pack — covering the asset, your track record, financial statements, cashflow projections, and a clear exit strategy — signals competence and reduces perceived risk, which directly influences margin decisions. Incomplete or poorly presented applications are routinely priced at a premium to compensate for perceived uncertainty.

Third, use a whole-of-market broker with a substantial lender panel. With access to 100+ lenders across the specialist, challenger, and institutional market, a broker can identify those most likely to compete aggressively for your deal type and run a structured process that generates genuine competition on rate. Approaching lenders individually — particularly for commercial property loans above standard high street criteria — almost always leaves money on the table. For commercial mortgages, bridging loans, and development finance, Construction Capital works with the full range of UK specialist lenders to secure the sharpest available terms for each deal.

Finally, consider macro timing. Commercial mortgage pricing tracks the Bank of England base rate cycle. If cuts are anticipated in the near term, locking into a long fixed rate near the top of the cycle increases your total interest cost. Conversely, if rates are expected to rise, fixing provides protection against higher debt service. Neither outcome is guaranteed — but building rate sensitivity into your financial model, and stress-testing your appraisal against a 1–2% rate increase, is a discipline that protects returns across market cycles.