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YOUR HOME/PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP WITH YOUR MORTGAGE REPAYMENTS. The FCA does not regulate mortgages on commercial or investment buy-to-let properties.
Last updated
June 19th, 2023

What are commercial mortgages?

A commercial mortgage or business mortgage is for companies that want to buy property or land for commercial use. You might get one if you want to buy an office, shop floor or property to rent out as an investment.

Buy-to-let mortgages are a special kind of commercial mortgage for people who want to rent out a residential property.

How do commercial mortgages work?

Commercial mortgages work like normal residential mortgages for the most part. You borrow money from a bank, building society or another lender to finance property or land. The loan then has interest added on top, which must be repaid. 

However, unlike a residential mortgage, commercial mortgages let you buy one or more properties to:

  • Use for your business

  • Rent out as an investment

Another difference is that you don’t typically get fixed-rate business mortgages. Instead, you’re usually offered a variable-rate deal, which is pegged to another financial indicator, most often SONIA. This means your monthly repayments go up or down in line with movements in the base rate. 

However there are a few lenders, such as NatWest, that offer fixed-rate mortgages for commercial customers. A third difference is that most residential mortgages are repayment loans. This is when your monthly payments cover both the capital you borrowed and the interest. At the end of the term, you own the property outright.

When it comes to commercial loans, interest-only mortgages are far more common, with many lenders offering a choice between an interest-only or repayment mortgage. Some providers even offer interest roll-up mortgages, where you don’t make any payments on the sum borrowed or the interest until the end of the term.

You usually need a higher deposit for a commercial mortgage. While people looking to buy a home can usually do so with a deposit of as little as 5%, most business mortgages usually offer a loan-to-value (LTV) rate of up to 75%. This means you need a deposit or equity of at least 25%. Some providers let you use the equity in another property you own instead of a deposit.

Commercial mortgages usually offer terms of between 3-30 years. The amount you can borrow will vary, but it could be from £110 million plus. If you need to borrow less, check out our business loans comparison instead.

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Commercial mortgage eligibility and criteria

When you apply for a residential mortgage, the provider will decide whether to lend you the money based on a strict eligibility criteria. Commercial mortgages are no different, although the factors that the provider considers are not quite the same.

Each lender decides if they can accept your mortgage application based on:

  • Your company's income, assets and credit record

  • Projected income and cash flow

  • Any debts the business owes

  • Your personal finances

  • Your ability to pay the deposit

  • Whether your profits are enough to meet monthly payments

If you plan to rent out the property, the income will be taken into account and lenders may also look at the finances of your tenants.

Types of commercial mortgages

Owner-occupier mortgages

This is when you get a commercial mortgage to buy property to use for your business. For instance, a place of work, regional office or trading premises.

Commercial investment mortgages

This kind of mortgage is for investors who want to rent out commercial property. For instance, a shop or office that is rented to other businesses.

Buy-to-let mortgages

These mortgages are used if you want to buy a home that is then rented out as a permanent residence.

Property development mortgages

These are designed for property developers. This includes building new homes or converting buildings from residential to commercial (or vice versa).

What fees are involved in commercial mortgages?

Arrangement fees

These are the fees you pay to lenders for arranging the mortgage. They are often between 0% to 3%, with the rate depending on the size of the loan and the lender you use.

Valuation fees

The mortgage provider sends someone to assess the property and write a report about its value. 

These fees vary from lender to lender, so make sure you check to see what they charge. They may be as little as £500, but can be more in complex cases.

Legal fees

Your mortgage lender presents legal fees, and you also need to pay your own mortgage lawyer. Paying both sets of fees can be costly, but having a good lawyer is critical to making sure your purchase goes smoothly.

Broker fees

While you don’t have to use a broker, they can help you understand all the options available to you. They find the best deal and do all the admin and paperwork on your behalf. A typical rate might be 1% of the total value of the loan.

What fees are involved in commercial mortgages?

Arrangement fees

These are the fees you pay to lenders for arranging the mortgage. They are often between 0% to 3%, with the rate depending on the size of the loan and the lender you use.

Valuation fees

The mortgage provider sends someone to assess the property and write a report about its value. 

These fees vary from lender to lender, so make sure you check to see what they charge. They may be as little as £500, but can be more in complex cases.

Legal fees

Your mortgage lender presents legal fees, and you also need to pay your own mortgage lawyer. Paying both sets of fees can be costly, but having a good lawyer is critical to making sure your purchase goes smoothly.

Broker fees

While you don’t have to use a broker, they can help you understand all the options available to you. They find the best deal and do all the admin and paperwork on your behalf. A typical rate might be 1% of the total value of the loan.

What types of companies can get a commercial mortgage?

You can get a commercial mortgage in your own name, or if you have a:

  • Limited company

  • Limited Liability Partnership (LLP)

  • SPV (Special Purpose Vehicle)

  • SIPP/SSAS

  • Trust

  • Offshore company

What properties could you buy with a commercial mortgage?

You could get a commercial mortgage for:

  • Commercial or residential buy to let investment properties

  • Warehouses and factories

  • Shops and retail premises

  • Office buildings

  • Pubs and hotels

  • Farms and land

  • Professional practices (e.g. solicitors' offices)

Commercial mortgages FAQs

Should you use a commercial mortgage broker?

While you don’t have to use a broker, it's often a good idea. An independent broker can search the market to find the best deals for your specific circumstances. This means you should be able to see the best rates available to you. Your broker can also help with all the admin and paperwork.

What Is the difference between a commercial and residential mortgage?

The main difference between a commercial and residential mortgage is the purpose of the property or land.

  • A residential mortgage is when you borrow money to buy a home to live in.

  • A commercial mortgage is for business purposes, such as buy-to-let property or a shop.

Other differences include the size of the deposit you’ll need and the types of mortgages on offer.

Can I live in a commercial property?

You can’t just move into a property that has commercial status. Instead, you need to apply to change its status to residential and you may also need planning permission.

You’ll need to pay fees, which could cost £500 or more. You’ll also need to make sure you have the right insurance, as commercial insurance won’t cover people living in the building.

About the author

Atousa Cunnell
Atousa is a Content Producer for money.co.uk, responsible for writing and editing a wide range of mortgage content that are helpful to the reader.

money.co.uk is not a mortgage intermediary and makes introductions to Mojo Mortgages to provide mortgage solutions.

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