Commercial Mortgage Guide

Commercial mortgages fall into two broad categories. Owner-occupied mortgages are used to purchase or refinance premises from which the borrower trades — such as a business buying its own warehouse, office, or retail unit. Investment mortgages are used to purchase or refinance commercial property that is let to tenants, where the rental income services the debt. The lending criteria, affordability assessment, and pricing can differ significantly between the two.

Commercial mortgages typically require a deposit or equity contribution. The loan-to-value (LTV) ratio expresses the loan amount as a percentage of the property value or purchase price (whichever is lower). Commercial LTVs are generally lower than residential — commonly up to 70-75% for owner-occupied and up to 65-70% for investment, though actual maximums depend on the lender, property type, borrower profile and market conditions. We do not publish fixed current rates or LTVs as these change frequently.

Lenders assess affordability using the rental income (for investment) or business cashflow (for owner-occupied). A common metric is the debt service coverage ratio (DSCR) — the ratio of net operating income to debt service (principal and interest). A DSCR above 1.0 means the income covers the debt; lenders typically look for a minimum DSCR (often around 1.2-1.3x or higher) to provide a buffer. Actual requirements vary by lender and circumstances.

Lenders instruct a professional valuation (not a simple desktop estimate) to confirm the property value and condition. The valuation is carried out by a RICS-qualified surveyor on the lender's panel. The valuation may identify issues that affect the property's suitability as security — such as structural defects, environmental concerns, or legal/title issues. The borrower typically pays for the valuation.

Security typically includes a first legal charge over the property. The lender may also require additional security, such as a debenture over company assets (for owner-occupied mortgages where the borrower is a company), additional property charges (for portfolio lending), or personal guarantees from directors or business owners. The security structure depends on the lender, loan size, borrower profile, and risk assessment.

Fees can include: arrangement fee (charged by the lender — typically a percentage of the loan amount), valuation fee (paid to the surveyor), legal fees (both lender's and borrower's solicitors), broker fee (if you use a broker — agree this upfront), and booking or commitment fee (some lenders). Actual fees and amounts vary by lender and product. Your broker should explain all fees before you commit.

Commercial mortgage terms typically range from 2 to 30 years. Repayment structures include: capital and interest (repayment mortgage — the loan is fully repaid by the end of the term), interest-only (you pay interest only and repay the capital at the end — you need a credible repayment vehicle), or part and part (a combination with a balloon payment at the end). Interest rates may be fixed, variable, or base-rate-linked. Actual rates depend on the lender, LTV, borrower profile, property type, and market conditions.

A typical application progresses through: initial enquiry, Decision in Principle (DIP), full application with documents, valuation, underwriting, formal offer, legal work, and completion. Timescales vary significantly depending on complexity. A straightforward case may take several weeks; more complex cases can take longer. We do not guarantee specific timescales.

Most wholly commercial mortgages are not regulated by the FCA. However, regulation can apply depending on the property use and borrower circumstances — including where the security includes, or is connected with, a dwelling (such as a flat above a shop, or mixed-use property). The classification depends on specific facts. If you are unsure whether a mortgage is regulated, obtain advice from a suitably qualified professional. FinanceMyCompany.co.uk is a credit broker, not a lender.