What is a typical commercial mortgage rate?

A typical commercial mortgage rate in the UK ranges between 6% and 9%, but the exact rate offered can vary widely depending on the details of the borrower and the property. Unlike residential mortgages, commercial mortgage rates are usually bespoke, meaning they are tailored to each individual deal based on the level of risk involved.

Several factors influence the interest rate. One of the biggest is the loan-to-value (LTV) ratio generally, the lower the LTV (the bigger the deposit), the better the rate. The type of property also matters; standard commercial buildings in strong, established locations are usually seen as lower risk and attract more competitive rates.

Lenders will also closely assess the financial strength of the borrower or business, including trading history, accounts, and credit profile. For investment properties, the strength of the tenant, known as the covenant strength, is another important consideration. A property let to a financially stable tenant on a long lease is typically viewed as lower risk, which can result in more favourable pricing.

Certain sectors, such as healthcare, may benefit from lower commercial mortgage rates due to their perceived stability. On the other hand, borrowers with weaker credit, limited trading history, or more complex requirements might see rates in the higher range 8% to 10% or more.

It’s also worth noting that most commercial mortgages are offered on variable or short-term fixed rates, rather than the long-term fixed options commonly available in the residential market. This can make repayments less predictable, especially in a rising interest rate environment.