What are commercial mortgages?

A commercial mortgage is a loan secured against a property that's used for business purposes, such as an office, warehouse, shop, or factory.

In this guide, you'll learn how commercial mortgages work, the types available, the potential benefits and risks, and how to decide whether one could be right for your business.

What are commercial mortgages?

A commercial mortgage works in a similar way to a residential mortgage, but the property being purchased or refinanced is used for commercial purposes.

The property itself acts as security for the loan, which means the lender could repossess it if you fail to keep up with repayments.

Commercial mortgages are commonly used by businesses that want to purchase their own premises rather than renting, or by investors looking to buy property to let commercially.

How do they work?

You typically need a deposit of 20–40% of the property's value, with the lender providing the remainder. Repayment terms are usually between 3 and 25 years.

Interest rates may be fixed or variable, and the amount you can borrow will depend on your business's financial position, the property's value, and the rental income it could generate (if applicable).

What types of commercial mortgages are there?

Owner-occupied commercial mortgages

These are for businesses buying property to operate from. Lenders will typically assess your business's ability to service the loan from its trading income.

Commercial investment mortgages

These are for purchasing property that will be let to tenants. Lenders will focus on the rental income the property could generate.

Semi-commercial mortgages

Mixed-use properties - for example, a flat above a shop - may require a semi-commercial mortgage, which combines elements of residential and commercial lending.

What are the benefits?

• Build equity - monthly payments go towards owning an asset that could increase in value.
• Stability - no landlord, no rent increases, and the security of a permanent base.
• Tax relief - interest payments on a commercial mortgage may be tax-deductible. It's worth checking with your accountant.
• Control - you can adapt the property to suit your business without landlord restrictions.
• Rental income - if the property has spare space, you may be able to let it to generate additional income.

What are the risks?

• Repossession - if you can't keep up with repayments, you could lose the property.
• Large deposit - you'll typically need 20–40% upfront, which ties up a significant amount of capital.
• Property value - commercial property values can fall, potentially leaving you in negative equity.
• Interest rate changes - variable rates could increase your monthly costs.
• Long-term commitment - selling a commercial property can take longer than selling a residential one.

Is my business eligible?

Lenders will typically require a strong trading history (often 2+ years), a solid business plan, a sufficient deposit, and evidence that your business can afford the repayments.

If your business is newer, you may still be able to access commercial mortgage funding through specialist lenders, though terms could be less favourable.

How do they differ from other funding?

A commercial mortgage is specifically for purchasing property, whereas a business loan can be used for any purpose.

Asset finance covers moveable assets like vehicles and equipment, not property.

If you need shorter-term funding for working capital, options like invoice finance or a merchant cash advance may be more appropriate.

How do I choose a lender?

• Compare interest rates, fees (arrangement, valuation, legal), and the total cost over the term.
• Consider whether a fixed or variable rate suits your business better.
• Check the lender's requirements for deposits and personal guarantees.
• Ask about early repayment charges and flexibility to overpay.
• A commercial mortgage broker may be able to access deals you can't find directly.

How can I learn more?

The British Business Bank and GOV.UK provide useful resources on property finance.

You may also find our guides on business loans, asset finance, and working capital helpful.