Commercial Mortgage Rates
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Countless businesses, business owners and aspiring business owners contact us with questions about commercial mortgage interest rates, so we’ve put together this comprehensive guide to business mortgage rates in the UK.
In this article:
- What are the current commercial mortgage interest rates in the UK?
- Are commercial mortgages more expensive than residential?
- How are commercial mortgage loan interest rates determined?
- How do I get the best commercial mortgage loan rates?
- Commercial property mortgage rates and terms
- How do I carry out a comparison of business mortgage rates?
- Are small business commercial mortgage rates any different?
- Are commercial mortgage rates any different around the UK?
- Speak to an expert on business mortgage interest rates
What are the current commercial mortgage interest rates in the UK?
There’s no simple answer to this question. You won’t find many definite rates listed on lenders’ websites because commercial mortgage loan rates are not predetermined.
This may be true of residential mortgages, but commercial applications are always handled on a case-by-case basis and the rates you end up with will be determined based on a thorough assessment of you and/or your business, and the strength of the investment.
Lenders tend to offer their best commercial mortgage deals when the perceived level of risk is low, and what is classed as risky will vary across the board.
How is interest charged on a commercial mortgage?
Like residential mortgages, commercial mortgages can be either fixed or variable rate – although variable rate is more common with this type of borrowing.
With fixed-rate lending, you will pay a discounted rate of interest for a set period of time (usually between 2 and 10 years) before switching to the lender’s standard variable rate (unless you refinance), which will likely be higher.
Meanwhile, interest rates on variable rate commercial mortgages are based on either the Bank of England’s Base Rate or LIBOR (London Inter-Bank Offered Rate).
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Are commercial mortgages more expensive than residential?
They can come with higher rates and fees because commercial mortgages are usually treated as higher risk than residential.
What is the average interest rate on a commercial mortgage?
An average owner-occupier commercial mortgage can come with an interest rate of anywhere between 1.5%-3% above the Bank of England base rate. This may vary considerably based on the factors we’ll go on to discuss in this article.
Commercial investment mortgages are usually considered higher risk and, therefore, come with higher interest rates.
How are commercial mortgage loan interest rates determined?
Most business lenders will take the following into account when determining interest rates for a commercial mortgage…
- Whether it’s a commercial investment mortgage or an owner-occupier deal
- The loan to value ratio (LTV)
- Credit history
- You and/or your business’s financials
- The viability of the investment
- The size of the loan
We outline how each of the above can impact interest rates for commercial mortgage loans in the section below, but you can always make an enquiry to speak with an expert commercial mortgage broker on the phone for more information and access to the best lenders in the business.
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How do I get the best commercial mortgage loan rates?
When customers ask us “what are the rates for commercial mortgage loans?” we find that it’s more productive to tell them how to get the best rates, rather than cite average/typical commercial mortgage rates to them. Interest rates are always in flux and can change at any time, not to mention the fact that business lending is usually bespoke.
The most important thing to keep in mind when it comes to getting the best commercial mortgage rates in the UK is that finding a broker with access to the entire market is the place to start. That way, all of the best deals you qualify for will be within reach.
The specialist advisors we work with are whole-of-market and have the expertise to offer insight on your application, and connect you to the provider best positioned to offer a low-interest commercial mortgage to a lender with your needs and circumstances.
What criteria do I need to meet to qualify for the best business mortgage rates?
Every commercial lender will have different eligibility criteria, but generally speaking, most providers consider the following when deciding which business mortgage rate to offer…
Commercial mortgages can be broadly divided into two types: commercial investment (for properties you’re planning to let out) and owner-occupier (when you’re buying business premises) – and the rates you end up with can differ based on the type you want.
Most lenders consider commercial investment mortgages to be riskier, and therefore the rates they come with are usually higher than for owner-occupier deals.
Commercial lenders will need to know that the mortgage is affordable and serviceable – the more confident they are of that, the more likely they are to offer favourable rates.
For owner-occupier deals, the provider will calculate how much you can afford to borrow by assessing your company’s operating performance, and this will boil down to its earnings before interest, tax, depreciation and amortisation (EBITDA).
There’s no hard and fast rule about how much you can borrow based on your business’s EBITDA, but the figures will need to show it is profitable enough to cover the mortgage.
Obviously, the more profitable your firm is, the more likely you are to get the best rates.
Rates for commercial investment deals, meanwhile, are usually based on the projected rental coverage.
The more rent your investment property is likely to generate, the lower the risk.
Some lenders will want the rental coverage to reach 190% for commercial properties and 130% for buy to let, but a specialist provider might be happy with 110-125%.
Commercial property mortgage rates and terms
Commercial mortgage terms can vary between three and 40 years, but most tend to fall into the 15-30 year bracket. The length of the term you’re given will affect the total amount of interest you pay throughout the duration of the business mortgage loan.
While a longer term means smaller monthly payments, you will end up paying more in interest if you spread the debt over a longer period. The advisors we work with can help you determine what kind of term length is right for you, based on your needs and affordability.
How do I carry out a comparison of business mortgage rates?
Some lenders use a different commercial mortgage rates calculator to others, so the amount you can borrow and the rates you qualify for will be different across the board.
Approaching a number of different providers isn’t the way to go about a commercial mortgage interest rates comparison as having too many hard searches on your credit file can be detrimental to your credit rating, not to mention how much legwork this involves.
Is there a better alternative to using a commercial mortgage calculator?
The best way to search the market for the best rates is to make an enquiry with a whole-of-market commercial broker and have them compare commercial mortgage interest rates for you. That way, you will have access to all of the best deals you’re eligible for.
Get in touch and the advisors we work with introduce you to the lender offering the best commercial mortgage deals you’re eligible for.
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Are small business commercial mortgage rates any different?
No, generally speaking, small businesses have access to all of the same commercial mortgage products as larger operations and the rates they will be offered are usually no different, as long as the lender is happy with the level of risk. The risk will be assessed in much the same way as for larger businesses, based on the same eligibility checks.
Things will only be different if your small business is a start-up or a Limited Company. With new operations, additional security and a strong business plan may be required to make up for the lack of trading history, while Ltd Company borrowers may be asked to present personal guarantees from the directors as well as debentures.
Are commercial mortgage rates any different around the UK?
As commercial lending is bespoke, there are no hard and fast rules about how mortgage rates differ in England compared to Ireland, Scotland and Wales.
There may be postcode restrictions north of the border, as some commercial lenders won’t lend for properties in the Scottish Highlands or away from the mainland, but generally speaking, it may be possible to find favourable commercial mortgage rates in Scotland.
Speak to an expert on business mortgage interest rates
If you have questions about mortgage rates for business property and want to speak to an expert for the right advice, call Online Mortgage Advisor today on 0808 189 2301 or make an enquiry online.
Then sit back and let us do all the hard work in finding the broker with the right expertise for your circumstances. They can connect you to the lender offering the lowest commercial mortgage rates you qualify for.
We don’t charge a fee and there’s absolutely no obligation or marks on your credit rating.
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