Commercial Mortgage Loan Rates: A UK Developer's Guide

A commercial mortgage is a loan secured against a commercial property — offices, retail units, industrial buildings, mixed-use assets, or semi-commercial properties with a residential element above. Unlike residential mortgages, commercial mortgage loan rates are not set by a standardised schedule. Each lender prices the risk individually based on the property, the borrower's financial profile, and the proposed loan structure.

Rates are expressed either as a fixed percentage per annum or as a margin above the Bank of England base rate for variable-rate products. The Bank of England adjusts its base rate independently in response to inflation and broader economic conditions, so borrowers on variable-rate commercial mortgages will see their monthly repayments move whenever the base rate changes.

Commercial mortgage terms typically run from 3 to 25 years. Interest-only periods are common, particularly where a borrower is refinancing a trading or investment property or converting a short-term bridging facility into a long-term loan. Capital and interest repayment structures are equally available and tend to attract tighter pricing as they demonstrate steady balance-sheet reduction.

It is important to distinguish between the headline interest rate and the all-in cost of borrowing. Arrangement fees, valuation costs, legal fees, and — where relevant — early repayment charges all affect the true cost over the life of the facility. Comparing commercial mortgage loan rates on a like-for-like basis requires assessing the total cost, not the margin in isolation.

The two principal rate structures available on UK commercial mortgages are fixed rates and variable rates. Each has distinct advantages depending on your cashflow requirements, interest rate outlook, and planned holding period for the asset.

Fixed-rate commercial mortgages give borrowers certainty over monthly repayments for the duration of the fixed period — typically 2, 3, or 5 years — after which the loan reverts to the lender's standard variable rate or the borrower refinances. Early repayment charges (ERCs) during the fixed term can be material, typically expressed as a percentage of the outstanding balance. Any planned exit or refinance should be factored into the loan structure from the outset.

Variable-rate products are priced as a margin above the Bank of England base rate or SONIA (Sterling Overnight Index Average). When the base rate falls, borrowers benefit from reduced monthly costs; when it rises, payments increase accordingly. Some lenders offer tracker products with a floor rate, meaning the effective rate will not fall below a defined minimum regardless of base rate movement.

Commercial mortgage lenders assess a range of risk variables when pricing a loan. Understanding these factors allows borrowers and their advisers to present applications in the strongest possible light and negotiate more effectively across the lender market.

Loan to value (LTV) is one of the most influential pricing variables. Most lenders will advance up to 70%–75% LTV on standard commercial property, with lower LTVs attracting tighter margins. Some specialist lenders will extend to 80% LTV in specific circumstances, though this is reflected in a higher interest rate and more conservative rental income cover requirements.

Property type and occupancy status significantly affect pricing. Owner-occupied commercial properties — where the borrowing business itself occupies the asset — are generally viewed more favourably than investment properties let to third parties, because the lender has direct visibility of the borrower's trading performance. Industrial units and well-let office buildings often attract tighter rates than retail assets, reflecting current investor appetite and vacancy risk across property sectors.

Borrower profile encompasses trading history, business accounts, personal credit history, existing liabilities, and net worth. Lenders want evidence of a sustainable, profitable business capable of servicing the debt. Most lenders require at least two to three years of filed accounts for trading businesses, though some specialist lenders will consider applications from borrowers with shorter histories against strong asset security.

Loan term and repayment structure also affect pricing. Interest-only facilities over longer terms carry greater credit risk and are typically priced accordingly. The loan amount is also a factor — most high-street and challenger banks have minimum loan sizes of approximately £150,000, while specialist lenders may accommodate smaller loans with adjusted pricing.

Lender type matters considerably. High-street banks such as NatWest, Lloyds, and HSBC tend to offer competitive rates for straightforward owner-occupied commercial loans with strong covenant. Challenger banks and specialist lenders — including Shawbrook, Allica, United Trust Bank, and Aldermore — offer broader criteria and often faster credit decisions, which may carry a modest rate premium. Some lenders accept joint venture structures on larger schemes where the borrower and lender share in the upside, which can unlock finer effective pricing on complex commercial deals. A specialist broker with access to a wide lender panel is best placed to identify which lenders are likely to offer the most competitive terms for your specific profile.

As a general market benchmark, commercial mortgage loan rates in the UK currently range from approximately 4.5% to 8%+ p.a. depending on LTV, property type, and lender. Standard commercial investment mortgages at 60%–65% LTV from challenger bank lenders currently start from around 5%–6% p.a. on a variable basis, with fixed-rate options running marginally higher to reflect the cost of interest rate hedging.

Owner-occupied commercial mortgages — where the business occupies the entire property — can attract rates from around 4.5% p.a. upwards from high-street lenders where the credit profile is strong. Professional practices, medical surgeries, and established trading businesses with long accounts histories tend to qualify for the keenest pricing in this category.

Semi-commercial properties — such as a retail unit with a flat above — attract specific underwriting criteria and are not accommodated by all high-street lenders. Specialist lenders price semi-commercial risk differently depending on the proportion of residential to commercial floor area and the tenancy mix. Rates for semi-commercial assets typically run 0.5%–1.5% above equivalent fully commercial loans.

For larger facilities above £5M, commercial mortgage loan rates are often negotiated on a bespoke basis with individual credit committees. At this size, the borrower's wider relationship with the institution, track record of performance, and cross-sell potential to the bank all become meaningful pricing variables.

The headline interest rate is only one component of the total cost of a commercial mortgage. Before committing to a facility, borrowers should calculate the all-in cost including all associated fees.

Arrangement fees are charged by the lender at drawdown and are typically 1%–2% of the loan amount, though some lenders charge a flat fee on smaller loans. Arrangement fees can usually be capitalised — added to the loan balance — though this increases the overall borrowing and the monthly interest charge.

Valuation fees are payable to the lender's appointed surveyor and vary with loan size and property complexity. A commercial valuation on a straightforward freehold retail unit might cost £1,500–£3,000, while a large mixed-use investment portfolio will incur significantly higher fees. The valuation is instructed by the lender and is non-refundable if the loan does not proceed to drawdown.

Legal fees cover both the lender's solicitors — always charged to the borrower — and the borrower's own legal advice. Budget for £2,000–£5,000+ on each side for a standard commercial mortgage. Complex transactions with multiple titles, leases, or security requirements will incur proportionately higher costs.

Early repayment charges apply to most fixed-rate facilities and some variable products. These are typically expressed as a percentage of the outstanding balance on exit during the fixed or locked period — a 3% ERC on a £2M loan represents £60,000 in exit costs. Always review the ERC schedule before signing heads of terms if there is any likelihood of early repayment or refinancing.

Broker fees are payable where a commercial mortgage broker is used to source and manage the facility. For further detail on process and costs, read our comprehensive commercial mortgage guide for UK investors or explore our dedicated commercial mortgages service.

Commercial mortgage loan rates are rarely fixed in stone. Lenders have discretion to price individual applications, and a specialist broker with access to a wide panel is consistently better placed to negotiate competitive terms than a borrower approaching lenders directly — particularly where requirements fall outside standard owner-occupied criteria.

Preparation is the single most important factor in achieving a competitive rate. Lenders reward borrowers who provide clean, complete information upfront. This means current management accounts, audited financial statements for the past two to three years, a schedule of existing liabilities, full tenancy schedules for investment properties, and a clear statement of the loan purpose and proposed security.

Competitive tension between lenders also influences pricing. When a lender is aware that a borrower is comparing terms across multiple institutions simultaneously, pricing tends to sharpen. A broker facilitates this process without the borrower needing to make multiple direct approaches — a process that, if handled incorrectly, can generate multiple credit searches and negatively affect a credit profile.

Where speed of acquisition is critical — for example purchasing a commercial asset at auction — a bridging loan can complete in days rather than weeks, allowing time to arrange the most favourable long-term commercial mortgage subsequently. See our guide comparing development finance vs bridging loans for context on when each short-term product is appropriate.

Drawing on Matt's 25+ years of experience and a lender panel of 100+, Construction Capital sources commercial mortgage facilities across all property types, loan sizes, and borrower profiles throughout the UK. We handle everything from initial enquiry through to drawdown, managing lender relationships and negotiating terms at every stage. For context on how specialist lenders differ from high-street banks on pricing and criteria, see our guide on bank vs specialist development finance.