Commercial mortgage rates confuse a lot of first-time commercial borrowers, because the question people ask, "what is the rate?", does not really have an answer. Unlike a residential mortgage, where lenders publish a rate card you can compare in an afternoon, a commercial mortgage is priced deal by deal. The rate you are offered is assembled from a reference rate, a margin for risk, and a fee stack on top, and every part of that build moves with the specifics of your property, your borrower profile and your loan structure.
This guide takes the rate apart and shows you each building block, so you can work out roughly where your own pricing is likely to land and, just as important, why. It gives ranges dated to the time of writing, because commercial pricing moves constantly with the Bank of England base rate and with lender appetite. It is education, not a rate table and not a quote. For live pricing on a specific deal you will need a lender or a commercial finance broker.
Why there is no single commercial mortgage rate
Residential lending is a volume business. A high-street lender writes thousands of near-identical owner-occupier mortgages, so it can publish a rate card and price at scale. Commercial lending is the opposite. Each building is different, each tenant is different, and each borrower's accounts tell a different story, so a commercial lender underwrites the individual deal and prices the individual risk.
That is why two investors buying similar units on the same street can be quoted noticeably different rates. One has a blue-chip tenant on a long lease and is borrowing at 55% loan-to-value; the other has a vacant unit and wants 75%. The lender is pricing very different risks, and the margin reflects that. So rather than hunt for "the" commercial mortgage rate, it is far more useful to understand the components that make up your rate, because those are the levers you can actually move.
The three building blocks: reference rate, margin and fees
Almost every commercial mortgage rate is built from three parts.
- The reference rate. This is the underlying cost-of-money benchmark. For most commercial lending it is the Bank of England base rate (3.75% as at July 2026) or SONIA, the sterling overnight index average. Your pay rate sits on top of this, and on a variable or tracker product it moves whenever the reference rate moves.
- The lender margin. This is the lender's charge for the risk of your specific deal, added to the reference rate. It is where almost all the variation lives. As a broad guide, as at July 2026 investment commercial margins commonly run about 2% to 4% over the reference rate, with keener deals below and higher-risk or specialist ones above. Verify the live band with a lender or broker.
- The fees. Separate from the interest rate, but part of the true cost. Arrangement fees, valuation, legals and any exit charge all add to what the money actually costs you. A low rate with a fat fee can be dearer than a slightly higher rate with modest fees.
Put simply: reference rate + margin = your pay rate, and pay rate + fees = your true cost. The rest of this guide is about what moves the margin and how the fees change the sum.
What drives your margin
The margin is the negotiable, risk-driven part of the rate, and a handful of factors do most of the work.
- Loan-to-value. The single biggest lever. Lower LTV means less lender exposure and a lower margin. Investment commercial LTV typically tops out around 70% to 75%; dropping well below that is the most reliable way to improve your rate.
- Owner-occupier versus investment. An owner-occupier borrowing against its own trade is often priced a touch keener and lent a higher LTV, because it is not exposed to a third-party tenant. Investment lending carries vacancy and re-letting risk and prices a little wider.
- Property type. Standard offices, industrial units and retail with broad demand price better than specialist assets (a petrol station, a care home, a place of worship) that are harder to re-sell if the lender has to recover.
- Lease and tenant covenant. On a let asset, a long lease to a financially strong tenant lowers the margin; a short lease, a break clause or a weak covenant raises it.
- Borrower strength and experience. Clean accounts, a track record and a sensible portfolio all help. A first-time commercial borrower or thin financials cost more.
- Term and repayment. Interest-only carries more risk than capital-and-interest and can price a shade wider, and the term length affects the offer too.
Worked example: taking a rate apart
To make the build concrete, take an investor buying a let commercial unit worth £750,000 and borrowing at 70% loan-to-value, so a £525,000 loan. The figures below are illustrative and dated to July 2026; they are not a quote.
| Component | Illustrative figure (as at July 2026) | Notes |
|---|---|---|
| Reference rate | 3.75% | Bank of England base rate, the benchmark the pay rate is built on |
| Lender margin | +2.75% | Investment purpose, 70% LTV, decent covenant, within the typical 2% to 4% band |
| Pay rate | 6.50% | Reference rate plus margin, the headline rate quoted |
| Annual interest (interest-only) | £34,125 | 6.50% of the £525,000 loan |
| Arrangement fee (1.5%) | £7,875 | Often added to the loan rather than paid up front |
| Valuation and legals | Low thousands | Commercial valuations cost more than residential; both sides' legals apply |
The headline is "6.50%", but that is not the whole cost. Spread the £7,875 arrangement fee over, say, a five-year hold and it adds roughly 0.3% a year to the effective cost, before valuation, legals and any exit fee. On a shorter hold the fee bites harder because it is amortised over fewer years. This is why a lender quoting a slightly lower pay rate with a bigger fee can be more expensive than one quoting a little higher with modest fees. Read the true cost, not the pay rate alone.
Fixed versus variable, and typical ranges
Commercial mortgages come as fixed or variable, and the choice affects both the rate and your risk.
A fixed rate locks your pay rate for a set period, usually two to five years on a commercial deal. It buys payment certainty and protection against base-rate rises, at the cost of early-repayment charges if you redeem within the fixed term. Fixed pricing is set from swap and forward-looking market rates at the moment you fix, so it reflects where markets expect the base rate to head, not just today's level.
A variable or tracker rate sits at a fixed margin over the reference rate and moves with it. Payments fall if the base rate drops and rise if it climbs. Variable products often carry lighter early-repayment terms, which suits a borrower planning to refinance or sell within a few years.
As a dated guide, as at July 2026 many investment commercial mortgages price in the high-5% to 8% region once margin is added to the 3.75% base rate, with owner-occupier and low-LTV deals often keener and specialist or high-LTV lending above. These are ranges, not a rate table, and they move with the base rate and lender appetite. Confirm the live band on your specific deal.
The fee stack that changes your true cost
Interest is only part of what a commercial mortgage costs. The fee stack can add meaningfully, and it varies more between lenders than the rate does.
- Arrangement or facility fee. Commonly around 1% to 2% of the loan, frequently added to the balance so you pay interest on it too.
- Valuation fee. Higher than a residential valuation, because a commercial valuation is a bespoke professional job that assesses vacant-possession and investment value, lease and covenant.
- Legal fees. You usually pay both your own solicitor and the lender's legal costs.
- Broker fee. If you use a commercial finance broker for whole-of-market access, they may charge a fee, a lender-paid commission, or both.
- Commitment or non-utilisation fee. Some lenders charge for holding a facility open.
- Exit or early-repayment charge. Redeeming inside a fixed term, or an exit fee on redemption, can add a final layer, so check it before you sign.
Total these over the period you actually plan to hold the loan, then compare offers on that whole-of-life basis rather than on the headline rate.
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How affordability shapes the rate you are offered
The rate does not exist in isolation from whether the lender will lend at all. Commercial lenders test affordability using a debt service cover ratio (DSCR) or interest cover ratio (ICR), which measures how comfortably the property income covers the loan payments. Investment lenders commonly want cover of around 1.25 to 1.4 times the debt service from net rental income, so the rent must clear the interest with a margin to spare. Owner-occupiers are tested on the trading business's affordability instead.
This matters for pricing in two ways. First, a deal that only just passes the cover test at a high LTV will attract a wider margin, because it is riskier. Second, the interaction runs both ways: a higher rate raises the payment, which tightens the cover ratio, which can cap how much you can borrow (UK Finance publishes market data on commercial and buy-to-let lending). Coming in at a lower LTV eases the cover test and improves the margin at the same time. If you want to stress-test the rent against the loan before you approach a lender, our rental stress test calculator shows how the cover ratio behaves as the rate moves, and the commercial mortgage calculator works the repayment and cost through in full.
How to compare the true cost, not the headline rate
The fair way to compare commercial mortgage offers is on total cost over your intended hold, not on the pay rate. Take each offer and add up the interest across the period you will hold the loan, the arrangement fee, valuation, legal costs, any broker fee, and any exit or early-repayment charge. That whole-of-life figure, closer to an APRC-style view than a single rate, is what you are really paying.
Two traps catch borrowers who shop on rate alone. A headline-low rate can hide a heavy arrangement fee and punitive exit charges that make it dearer on a short hold. And a variable rate that looks cheap today carries base-rate risk that a fixed rate does not, so the comparison is not like for like unless you factor in your view of where rates are heading. Build the full sum, then choose.
The tax point: commercial mortgage interest is a deductible finance cost
The rate and fees are only half the real cost, because the interest is deductible for tax and that relief is more generous on commercial property than on residential. Interest on a commercial mortgage is a finance cost of the letting or trading business, deductible in full against profit at your marginal rate under the ordinary rules for interest on loans (HMRC's Business Income Manual at BIM45650 covers the incidental costs of loan finance). The incidental costs of arranging the loan, such as arrangement and valuation fees, are generally deductible too.
Crucially, the Section 24 finance-cost restriction does not apply to commercial property. That restriction (ITTOIA 2005 s.272A) limits individual residential landlords to a basic-rate tax credit on their mortgage interest. Commercial and mixed-use landlords keep full deduction at their marginal rate, which is one of the reasons commercial letting is taxed more favourably on the income side than residential buy-to-let. Our guide to commercial property tax for landlords sets out the full six-tax picture, and how Section 24 treats commercial property explains why the restriction stops at the residential line.
So when you are weighing one rate against another, the after-tax cost is the number that matters, and full deductibility narrows the real-world gap between a higher and a lower pay rate. For a company borrower, the interest sits within the loan-relationship rules instead, with its own timing points. If you want the after-tax cost of your finance worked through for your own vehicle and figures, that is a tax question we can help with.
Where this sits in the wider commercial finance picture
Rate is one decision inside a bigger set. For how a commercial mortgage is structured, the deposit, term and the owner-occupier versus investment split, start with our commercial mortgages guide. If your property is part commercial and part residential, a shop with a flat above for example, the pricing and the regulated-boundary rules differ, and our semi-commercial mortgages guide covers the mixed-use case. And where you need to buy or reposition a commercial asset at speed before putting a term mortgage in place, bridging finance for commercial property explains the short-term route and how it exits onto a commercial mortgage.
Whichever route you take, treat the headline rate as the start of the sum, not the end of it. Build in the margin drivers you can influence, the full fee stack, the affordability test and the after-tax cost of the interest, and you will judge a commercial mortgage on what it truly costs rather than on the number at the top of the illustration.