Find the Best Commercial Mortgage Rates

A commercial mortgage - sometimes called a "commercial property mortgage" or "commercial property loan" - is quite simply a mortgage that’s secured against a commercial property. Commercial properties are properties that house businesses or operate as investments, like an office building or block of flats.

How Are Commercial Mortgage Rates Decided?

Commercial loan interest rates are decided using many different factors. When deciding on the commercial mortgage rates to offer you, lenders will typically look at these factors:

• The value of the loan - larger loans tend to come with steeper commercial loan interest rates as they are seen as riskier for the mortgage lender
• The LTV (loan-to-value) ratio - typically, the higher your LTV (i.e. the more you are borrowing against the value of the property) the higher the commercial mortgage rates tend to be
• The financial strength of the business
• Your financial status and credit history
• For investment properties, the length of the lease and quality of the tenant you propose to lease to. Generally, business mortgage rates are higher if you intend to rent the property rather than use it for your own business

Lenders will also have their own pricing structures and calculation methods in place that affect how your business mortgage rates are determined.

Fixed and Variable Rates Explained

As with residential mortgages, commercial mortgage rates can be fixed or variable.

Fixed commercial mortgage rates remain constant and do not increase or decrease over your agreed loan term. They can be fixed from 2 years up to the full length of your mortgage term and can protect your business finances from fluctuations and volatility in financial markets.

Variable commercial mortgage rates can go up or down over the agreed loan term, usually in reference to a defined benchmark, such as the Bank of England Base Rate or the London Inter-Bank Offered Rate (LIBOR).

Variable rate commercial mortgages are affected by fluctuations and volatility in financial markets, so you may need to adjust your monthly outgoings up or down as interest rates rise or fall.

Should You Fix Your Mortgage Rate?

The choice to fix your commercial mortgage rate is really a personal one and depends on your own circumstances and preferences.

Fixed rates remain static and can be beneficial if you value greater clarity and control of your monthly outgoings. With a fixed rate, you’ll know exactly how much you’ll pay based on your business mortgage rates every month and can budget accordingly.

Variable rates can go up or down with financial markets. This carries a certain level of risk, as you could end up paying more on your commercial loan interest rates if financial market factors push the Base Rate up.

What Are the Current Rates for Commercial Mortgages?

Commercial mortgage rates change regularly and can fluctuate from anywhere around 6% up to 12%, depending on if you’re after a smaller commercial loan or full commercial development loan. For up-to-date information, it’s best to speak to a specialist broker like John Charcol, who can provide information on the latest interest rates and products.

It’s worth noting that generally, investment properties tend to be seen as riskier by commercial or business mortgage lenders, so typically they have higher interest rates as a result.

Do You Need a Commercial Mortgage?

You may require or benefit from a commercial mortgage if you’re a:

• Business owner-occupier who wants to buy a property and use it as trading premises for your business
• Commercial property investor who wants to buy a property and let it out to a business you don’t own
• Residential property investor who wants to buy a multi-unit freehold block to let to tenants
• A commercial or residential property owner with a varied portfolio of rental (residential or commercial) properties who wants to remortgage under one potentially cheaper mortgage

What Kinds of Properties Require a Commercial Mortgage?

Properties and land often used as security for commercial mortgages include:

• Office buildings
• Warehouses/industrial units
• Shopping centres/shops
• Care homes
• Nursing homes
• Dentists' surgeries
• Doctors' surgeries
• Veterinary practices
• Pharmacies
• Blocks of flats
• Hotels/guest houses
• Agricultural land
• Funeral parlours

Which Commercial Mortgage Is Right for Me?

Deciding on the right commercial mortgage will depend on your own personal circumstances as well as how you intend to use the property, and various other factors, including the loan term, deposit amount and stability of the business. It’s a good idea to research mortgage deals, look at different loan options, and consider the various fees and risks – not just the introductory interest rate offered.

To help you decide on the right business mortgage, we advise speaking to our commercial mortgage advisers. At John Charcol, we can look at your circumstances in full and compare different business mortgage rates and products from the high street and specialist lenders. We can outline what’s available to you and advise you on suitable next steps.

Although some high street lenders do offer commercial mortgages, this is only a small sample of what’s out there. There are a lot of commercial mortgage lenders that aren’t available on the high street, like centralised lenders and private banks. Some won’t even consider applications directly from borrowers as they act through brokers/intermediaries only.

This means you may miss out on more competitive business mortgage rates and better deals if you don’t use a specialist broker.

John Charcol are an independent mortgage broker. We have expert commercial mortgage advisers on our team and work closely with Propp, who are a specialist commercial mortgage broker. This means that we can give you access to the different commercial mortgage lenders on the market and help you find a deal that’s worthwhile.

What’s more, we can consider your portfolio of properties as a single package, which could give you access to the best commercial mortgage rates across all your properties.

A commercial mortgage lender considers both the income of the borrower and the business of the tenants when assessing an application.

If you’re a business owner-occupier, you’ll need to provide:

• Proof of identity and address
• Evidence of personal income
• 3 years’ worth of financials for the business – they may consider projections if the company is in its infancy but typically require 3 years overall
• Trading figures covering the last 3 years
• Bank statements covering the last 3 months

If you’re a commercial property investor, you’ll need to provide:

• Proof of identity and address
• Evidence of personal income
• Copies of lease agreements – there are a few lenders that do provide mortgages for vacant commercial properties, but these often come with stricter criteria and aren’t very common
• Proof of agreed rental income and/or yield of the property/properties

If you’re a residential property investor, you’ll need to provide:

• Proof of identity and address
• Evidence of personal income
• Copies of lease/tenancy agreements
• Proof of agreed/estimated rental income and/or yield of the property/properties