Commercial Mortgage Rates and LTV Explained

A commercial mortgage rate is almost never a single flat number. Most lenders price as a margin over a reference rate, so what you actually pay is the lender's margin plus a benchmark that moves with the market. On variable deals that benchmark is usually Bank of England base rate or SONIA (the Sterling Overnight Index Average); on fixed deals the lender sets a rate for a defined period, having priced in its own view of where rates are heading. The margin is where the lender expresses its opinion of your risk, so two businesses can be offered very different numbers on the same asset. Everything below is indicative and illustrative; the lender prices your case and we place it, we do not set rates.

As a rough, illustrative frame, margins for well-presented cases often land somewhere around 2% to 4% over the reference rate, which stacks on top of base or SONIA to give the headline. Weaker or more specialist cases price higher, and a strong owner-occupied trading business with clean accounts can price keener. We would never quote you a number before a lender has underwritten the file, because the honest answer is that the margin depends on the security, the borrower, and the affordability picture, not on a rate card.

LTV (loan to value) is the other lever that moves everything, and it splits sharply by purpose. Owner-occupied commercial mortgages, where your own trading business occupies the premises, typically stretch further because the lender is comfortable with a business paying its own mortgage; illustrative gearing often reaches around 70% to 75% of value, sometimes higher against strong covenant. Investment or tenanted commercial property, where you let the building to a business tenant, is usually geared more conservatively, commonly around 60% to 70%, because the lender is underwriting rent from a third party rather than your own trade. Push for a higher LTV and you should expect the margin to rise with it; the two are linked.

Affordability is where owner-occupied and investment deals are scrutinised differently. On an investment loan the lender leans on DSCR (debt service coverage ratio), testing whether the rent comfortably covers the payments with a cushion, often stress-tested at a rate above the pay rate. On an owner-occupied loan the lender looks harder at the business's trading accounts, EBITDA, and serviceability from operating profit. A thin coverage ratio or lumpy accounts will either pull the LTV down, push the margin up, or both, long before it kills the deal outright.

Fixed versus variable is a genuine trade, not a default. A fixed rate buys certainty for the fixed period, which matters if your margins are tight and a rate rise would hurt, but you usually pay a premium for that certainty and early repayment can carry a charge. A variable rate tracks base or SONIA, so it falls if the benchmark falls and rises if it climbs; it often prices lower on day one and tends to be more flexible on early repayment. Which is right depends on your appetite for rate risk and how long you plan to hold, and the lender ultimately decides what it will offer.

Beyond the headline rate, budget for the fees that sit around a commercial mortgage. An arrangement fee (also called a completion or facility fee) is common, frequently in the region of 1% to 2% of the loan, and it is often added to the loan rather than paid upfront. On top of that expect a valuation fee, legal costs (usually both sides), and sometimes a commitment or non-refundable assessment fee on larger or more specialist cases. These are lender-set and case-specific, so treat any figure here as illustrative rather than a quote.

What actually moves your rate, in order of weight, is the quality of the security, the strength and covenant of the borrower, the LTV you are asking for, the sector and property type, and the affordability evidence in your accounts. A clean, well-documented case in a mainstream sector prices very differently from a specialist asset with a short trading history. Our job is to read your case honestly, tell you quickly which lenders are genuinely open to it, and place it with the one most likely to price it well. No broker can promise a rate or an approval before the lender has seen the file, and anyone who does is guessing.