A commercial mortgage is a long-term loan, secured on a non-residential property, that a business or investor uses to buy or refinance premises. Expect to put in 25% to 40% of the value as a deposit, which is a loan-to-value (LTV) of roughly 60% to 75% for ordinary offices, shops and industrial units, and less for pubs, care homes and other specialist property. The lender sizes the loan on the profit of the trading business if you will occupy the building, or on the rent the building earns if you are letting it out.
This article covers limited companies and investors borrowing for business purposes. It does not cover homes.
Key Takeaways
- A deposit of 25-40% is the normal range. On a £1m property that is £250,000 to £400,000.
- Owner-occupied loans are tested on trading profit. Investment loans are tested on rent cover. Cover of 125% to 150% of interest is the usual yardstick.
- Arrangement fees run 1% to 2% of the loan, and valuation and legal costs come on top.
- Pubs, care homes, hotels and other specialist property need bigger deposits and more operator experience.
- A business trading for under two years should expect to put in 30-35% or more.
- Allow 4 to 8 weeks from enquiry to offer on a straightforward deal.
What a commercial mortgage is, and who uses one
The loan is repaid monthly over a set term, and the rate can be fixed or variable. The property is the security, but the lender is really underwriting the business behind it. A residential mortgage can start with a 5% deposit and a personal credit check. A commercial one asks for far more equity and reads your accounts closely.
The borrowers fall into three groups:
- Owner-occupiers: a trading company buying or refinancing the building it works from, such as a workshop, surgery, warehouse or office.
- Investors: a company or individual buying a property to let to a business tenant.
- Operators of specialist property: hotels, nurseries, care homes and pubs, where the building and the business are tightly linked.
Borrowers can be limited companies, partnerships, sole traders or LLPs. Lenders range from high street banks to challenger banks and private lenders. The larger lenders tend to price more keenly but apply stricter criteria. Smaller private lenders are more flexible and charge more for it.
Lending of this kind to limited companies is not regulated by the FCA or PRA. The consumer protections you may know from residential mortgages do not apply, so read the facility terms yourself.
Owner-occupied, investment and semi-commercial
The purpose of the loan changes what the lender looks at, and often the price.
| Owner-occupied | Commercial investment | Semi-commercial | |
|---|---|---|---|
| Buying | Your own premises | Property let to a business tenant | Shop or office with flats above, or similar |
| What the lender tests | Trading profit and cash flow | Rent, tenant quality, lease length | Rent, with residential income counted |
| Typical LTV | 65-75% | 60-70% | Up to about 75% at some lenders |
| Pricing | Usually the keenest | Often higher | Depends on the lender |
In an owner-occupied deal the lender's main risk is whether your business keeps trading. In an investment deal it shifts to rental income, tenant covenant strength and occupancy.
Semi-commercial is where lender policy differs most, and the differences are product facts rather than rules of thumb. Allica Bank defines semi-commercial as property with more than 50% residential use. Its published rates for owner-occupied semi-commercial are lower than for owner-occupied pure commercial, and it asks for lower cover on semi-commercial investment (120%) than on commercial investment (130%). Its pricing for semi-commercial investment is also well below its pure commercial investment pricing, as the rate table below shows. Do not assume another lender treats mixed use the same way. Ask each one how it classes the property.
How much deposit and what LTV?
Most lenders ask for 25% to 40%, with a floor of around 25-30% for a sound, established borrower. Some larger, strong businesses can get as low as 20-25%. The figure moves with the following:
- the type of property and how easily the lender could sell it
- whether you will occupy it or let it
- your trading history, accounts and forecasts
- your sector experience
- the individual lender's appetite
Some rough deposit bands by borrower type:
| Situation | Deposit to expect |
|---|---|
| Trading under two years | 30-35% or more |
| Established business, owner-occupied | 25-30% |
| Larger business with strong financials | 20-25% possible |
| Commercial investment | Around 30-35% |
| Pub, care home, petrol station or similar | Around 35-40% |
| Buying through a limited company | Around 25-40% |
Location and credit can add to this. London and the South East can need an extra 5-10%, and a weak credit history can add a similar amount or a higher rate.
Here is the arithmetic on a £1,000,000 property:
- At 25% deposit: £250,000 down, £750,000 borrowed (75% LTV).
- At 30% deposit: £300,000 down, £700,000 borrowed (70% LTV).
- At 40% deposit: £400,000 down, £600,000 borrowed (60% LTV).
Lenders publish maximum LTVs by property type. Allica's guide shows how much they vary. Offices, retail units, industrial units, warehouses and garages go to 75%, holiday lets to 75% investment, takeaways to 70% and student accommodation to 60%. For loans over £3m the 75% ceiling rises to 77.5%, with the arrangement fee counted inside that figure. Aldermore, which lends between £500,000 and £3m, caps at 75% LTV.
A bigger deposit also tends to lower the rate. A 5-point increase in deposit, from 20% to 25%, could bring the rate down by around 0.5-1.5 percentage points. A bigger deposit does not guarantee a better price, though, because affordability, accounts, sector, credit history and the property all feed into it.
Loans above 75% LTV are uncommon and sit with specialist lenders at higher rates. Deposits with no money of your own in them are rare. The usual near-equivalents are putting up other property or valuable assets as extra security, and that comes with higher pricing or tighter terms.
Where the deposit can come from
Cash reserves and retained profit are the simplest source. Other routes are equity released from another property you own, or money from directors, shareholders or outside investors. In every case the lender will want to see where the money came from. If investors contribute, say at the start whether the money is a loan to the company or share capital, because lenders treat the two differently. Most lenders will not accept a credit card as a deposit source.
How rates are set
Commercial rates are usually built as Bank of England base rate plus a margin. Margins are typically 1.5% to 4%, depending on LTV, property type, lease terms, tenant quality and the borrower's profile. A strong owner-occupier with clean credit and a stable trading history can get total rates of 5% to 7%. Investment property with short leases or weak tenants attracts higher margins. Private lenders can charge a good deal more.
Lenders also sell fixed rates, and the published figures show how a rate moves with LTV and use. Allica's 5-year fixed rates from September 2026:
| Product | Up to 65% LTV | Over 65% LTV |
|---|---|---|
| Owner-occupied commercial | 6.95% | 7.30% |
| Owner-occupied semi-commercial | 6.45% | 7.20% |
| Commercial investment | 8.35% | 8.55% |
| Semi-commercial investment | 6.75% | 7.60% |
| Specialist buy-to-let | 6.40% | 6.95% |
The owner-occupied rates in that table already include a 0.5% discount for running the business's current account with the bank, and Allica says it applies the discount for the first five years. Variable rates on the same products are set as a margin over base rate, from 1.80% (owner-occupied semi-commercial, up to 65% LTV) to 3.90% (commercial investment, over 65% LTV).
Three things follow from this:
- Each step up in LTV costs you. Above 65% LTV the owner-occupied commercial rate rises by 0.35 percentage points, and the semi-commercial investment rate by 0.85.
- Investment costs more than owner-occupation on the same building type. That is the lender pricing the tenant risk.
- Add-on discounts can matter. On owner-occupied loans Allica takes a further 0.25% off for an EPC rating of A to C or a loan over £750,000, and another 0.25% for debt service cover above 200%.
Over 15 or 20 years, a quarter of a point on a large loan is real money, so compare the all-in position rather than only the headline rate.
Terms and repayment types
Terms are lender-specific. Allica offers up to 30 years on owner-occupied loans. Aldermore's range is 2 to 20 years. Many lenders sit between 10 and 25 years. Specialist sectors can be shorter. Allica's care home and nursery loans to first-time buyers run to a maximum of 20 years, against 30 for experienced operators.
There are two ways to repay:
- Capital and interest (repayment): each payment covers interest and some of the loan. Nothing is owed at the end.
- Interest-only: you pay only the interest and the whole loan falls due at the end, to be repaid from a sale or refinance.
Most lenders prefer repayment, and interest-only is harder to get because of the lump sum at the end. There are middle routes. Aldermore offers interest-only, part-and-part and capital-and-interest. Allica's owner-occupied loans are 30-year capital and interest, with up to five years of interest-only at the start for loans up to 75% LTV. Its investment loans offer five years interest-only on all products, or five years partially amortising on commercial and semi-commercial.
The lender's rules can force repayment. At Allica, owner-occupied hotel loans above 80% of vacant-possession value must amortise from day one.
Interest-only helps cash flow, but only if you have a credible plan for the final balance. A plan that depends on the property rising in value is a hope, not a plan.
Fees and other costs
The costs sit on top of the deposit, so budget for them from the start:
- Arrangement fee: usually 1% to 2% of the loan. Allica charges 1.5% on owner-occupied and 2.0% on investment. Aldermore charges 2.0%, added to the loan outside the maximum LTV, and pays a 1.5% procurement fee to the broker out of that fee. The broker is therefore paid from the lender's fee rather than by a separate bill, which is worth confirming with whoever acts for you.
- Valuation: a RICS valuation, instructed and paid for by you. A typical cost is £500 to £2,000, depending on the size and type of property.
- Legal fees: both sides need solicitors. Yours handles due diligence and the charge over the property at the Land Registry, and you normally pay for the lender's solicitor too.
- Early repayment charges: Allica's are 5%, 4%, 3%, 2% and 1% across years one to five on a five-year fix, and 3% for the first five years on variable-rate loans. Leaving early costs real money, so factor in your plans for the property.
Fees come and go. For a promotional period, for applications received between 7 July 2026 and 31 December 2026, Allica is waiving arrangement fees on owner-occupied and commercial investment loans of £750,000 and above, and on specialist buy-to-let loans of £1.5m and above. Check what applies on the day you apply.
Worked example: owner-occupied purchase
A company buys a £1,000,000 warehouse at 70% LTV.
- Loan: £700,000. Deposit: £300,000.
- Arrangement fee at 1.5%: £10,500.
- Valuation: say £1,500, within the typical range.
- Cash needed before legal fees: £300,000 + £10,500 + £1,500 = £312,000, or 31.2% of the price.
If the fee is added to the loan where the lender allows it, the debt is higher and the cash needed is lower, but you pay interest on the fee. Whatever the structure, the deposit is only part of the cash needed on the day.
How lenders test affordability
This is where most applications are won or lost. The two tests are different, and which one applies depends on the purpose of the loan.
Owner-occupied: trading profit
The lender asks whether the business can pay the loan out of its trading. It reviews company accounts, management information, cash flow, existing borrowing and debt-servicing capacity. The usual test is an interest cover ratio (ICR): annual profit before interest of about 125% to 150% of the annual mortgage interest.
Allica's version is debt service cover of 130%, measured on adjusted EBITDA for healthcare operators and on the figures in your accounts for other owner-occupiers. Two details matter:
- Cover is calculated on the rate without the current account discount.
- For a fixed rate, cover is tested at the pay rate. For a variable rate, it is tested at the pay rate plus 2%.
Example: you borrow £700,000 on an owner-occupied loan at the 7.30% fixed rate shown above (over 65% LTV). Without the 0.5% discount the rate for testing is 7.80%.
- Interest for testing: £700,000 × 7.80% = £54,600.
- Cover required at 130%: £54,600 × 1.3 = £70,980 of annual profit available to service the debt.
If the same loan were variable, with an illustrative pay rate of 7% and a test rate of 9%, interest for testing would be £63,000 and the profit required £81,900. The variable loan may be cheaper to run, but it needs more profit to pass. A business that clears the test comfortably on a fixed rate may fail it on a variable one.
Expect the lender to ask for at least two years of well-prepared accounts, evidence of profitability, stable or improving cash flow and a realistic forecast. It will also look at your credit history, your sector experience and whether the directors can give personal guarantees.
Investment: rent cover
The lender tests the rent against the interest. The usual yardstick is 125% to 150% of gross rent against annual interest. Allica asks for 130% on commercial investment and 120% on semi-commercial investment. It asks for 130% on specialist buy-to-let (145% if the borrower pays higher-rate tax). For investment property the lender also looks hard at the lease: its length, the strength of the tenant, any break options, and the condition and resale appeal of the building.
Example: a commercial investment loan of £650,000 (65% of a £1,000,000 property) at the 8.35% fixed rate.
- Interest: £650,000 × 8.35% = £54,275.
- Rent required at 130%: £54,275 × 1.3 = £70,557.50 a year.
On a semi-commercial investment at 6.75%:
- Interest: £650,000 × 6.75% = £43,875.
- Rent required at 120%: £43,875 × 1.2 = £52,650 a year.
The lower rate and lower cover requirement mean the semi-commercial property needs about £17,900 a year less rent to support the same loan. That gap is a product feature, not a general rule, but it is why mixed-use property is worth pricing across several lenders.
Residential rent inside a mixed-use or multi-unit building is often haircut. At Allica, gross rent is used for residential and multi-unit freehold blocks only with a strong profile: three months' loan repayments held in cash, a director or owner with a high consumer credit score and a personal guarantee. Otherwise it uses gross rent less 10%. Houses in multiple occupation are always assessed on gross rent less 25%.
Pubs, care homes, hotels and other harder property
Lenders treat a property as harder when it is hard to sell if the loan goes wrong, or when its value rests on the business trading in it. The usual response is a bigger deposit, a lower LTV and tighter checks on the operator. Pubs, care homes and petrol stations typically need around 35% to 40% down.
Allica's published LTVs show the pattern:
- Restaurants and pubs: 70% for both investment and owner-occupied.
- Guest houses and B&Bs: 70%.
- Leisure: 70%.
- Convenience stores: 75% on investment and 80% owner-occupied.
- Hotels: lending is tied to vacant-possession value in bands up to 100%, with rates rising with each band from 6.95% to 8.15%. Allica's loans over 80% must be fully repaying from day one, and any amount above 70% of vacant-possession value needs a personal guarantee.
Healthcare is its own world, and experience counts for more than the bricks:
- Size minimums at Allica: care homes need at least 20 bedrooms, specialist care homes at least four bedrooms (for one or two properties) and children's nurseries 40 registered places.
- Operator experience: specialist care operators need at least three years as a specialist care home owner-operator.
- First-time buyers: cover is 150% of adjusted EBITDA against 130% for experienced operators, and the maximum term is 20 years against 30.
- Pricing: care home margins over base rate run from 2.10% to 2.75% depending on experience and LTV. Investment loans on residential care and nursing homes are priced at 7.85% fixed up to 65% LTV, against 6.40% for supported living and local authority or housing association property.
A few lenders also have narrow appetites in investment. Allica has limited appetite for single asset or single tenant deals where the loan is up to £5m, the tenant is very low risk and the unexpired lease is at least five years.
If the deal is urgent or the property does not fit a mainstream lender, short-term funding may be the better first step, with a longer mortgage to follow. Our guide to bridging and development finance explains how that works and what it costs.
New businesses
A new business can borrow, but it will pay for the lack of a record. If you have traded under two years, expect to put in 30-35% or more. Some lenders cap LTV lower for newer businesses, and deposits of up to 50% occur. Lenders also want sturdier plans and projections and may ask for personal guarantees or extra security.
Two years of accounts is the usual benchmark. Allica's checklist asks for the last two years' accounts and excludes newly formed special purpose vehicles, which is the usual position for a property company set up to hold a single building. A new property company is not rejected for having no accounts, but the lender then leans on the sponsors' own financial strength.
There are practical ways to improve your position:
- Build the trading record and keep the credit file clean. Better credit behaviour can take 9 to 18 months to show.
- Bring a larger deposit, or offer extra security.
- Use a broker who knows which lenders will look at a short trading history.
First-time landlords face their own limits. Allica considers them only where at least 25% of the property is residential and a professional managing agent runs it. The maximum LTV is 10% below its standard appetite for the property type, and the borrower needs strong personal means and the ability to support a personal guarantee. Specialist operational property is outside its appetite for first-time landlords. If you are holding property through a company, see also our piece on limited company buy-to-let, though that is aimed at residential lets.
Overseas owners can be considered, but on tighter terms. Allica asks for at least 150% debt service cover and an LTV 10% below its standard. Where there are several directors, at least one decision-maker must be permanently resident in the UK.
Steps and documents to apply
A sensible order:
- Set the objective and budget. Decide whether you are occupying or letting, what the property is and what deposit you can commit.
- Gather the paperwork (below) before you approach anyone.
- Compare lenders through a broker and choose a route. Offers differ on LTV, cover requirements and fees.
- Get an agreement in principle, then instruct the valuation.
- Complete due diligence and legal checks. The lender runs anti-money laundering and fraud checks and may want evidence of the deposit's origin.
- Review the formal offer and its conditions.
- Exchange, complete and draw the funds.
- Set up repayments and any covenant reporting the lender requires.
If you are making an offer on a property before funding is agreed, make it conditional on finance.
For a straightforward deal, allow 4 to 8 weeks. Multiple tenants, development potential, planning restrictions or title problems add time.
A typical document list, drawn from Allica's mandatory checklist:
- Company details, plus full name, date of birth, three years of addresses and contact details for the officer applying.
- Property address, estimated value, age, freehold or leasehold, and property type.
- For tenanted property: tenant name, rent, and lease start, break and expiry dates.
- Product details: term, repayment profile and how the arrangement fee will be paid.
- The last two years' accounts with a detailed profit and loss and balance sheet, and up-to-date management accounts.
- Full tax returns of the ultimate beneficial owners.
- Three months of personal and business bank statements.
- A debt schedule where there is more than one external facility.
- A property schedule and an assets, liabilities, income and expense report.
- A proposal summary covering the structure of the loan, evidence of affordability (including how EBITDA was calculated), the directors' experience and a description of the security property.
For investment, the summary also needs the last 12 months of tenant performance, including voids, arrears and management expenses. For owner-occupiers, it asks how rising prices and energy and fuel costs have affected the business and how that was managed.
To see how a particular purchase might look before approaching lenders, use our property finance check. Our UK page sets out the rest of what we do for British businesses.
Frequently Asked Questions
What is the minimum deposit for a commercial mortgage?
Most lenders ask for around 25% to 30% at the lowest, with 25% to 40% the usual range. Stronger, larger businesses sometimes get 20% to 25%. Specialist property and newer businesses need more.
Can I get 100% finance?
It is rare. Where it exists, it usually means putting up other assets as security, and the pricing or terms tend to be harsher. Hotels at some lenders can reach high percentages of vacant-possession value, but that is a different basis from the market value of the building and it comes with conditions.
Is interest-only available?
Yes, but it is the harder route. Most lenders prefer repayment. Some offer a limited interest-only period at the start, or a part-and-part structure. Either way, you need a clear plan for repaying the balance.
How long does it take?
About 4 to 8 weeks from enquiry to offer or completion on a straightforward case, depending on complexity and on how quickly the valuation and legal work move.
Does a bigger deposit get me a cheaper rate?
Often, but not automatically. A larger deposit lowers LTV, which usually helps pricing and approval chances. Lenders still price on affordability, financial records, sector, credit history and the property itself.
The deposit is only part of the cash you need: add the arrangement fee, valuation and legal costs, and check that your profit or rent still clears the lender's cover test at its stress rate, not the rate you will actually pay.