Commercial MortgageCalculator
Calculate DSCR, yields, and monthly payments for commercial property investments. Model cash flow projections for offices, retail units, industrial premises, and mixed-use buildings.
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Commercial Mortgage Summary
DSCR (Debt Service Coverage Ratio) should typically be 1.25x or above. Most commercial lenders require minimum 1.2x coverage.
The Complete Guide to Commercial Mortgages in the UK
Commercial mortgages are secured loans used to purchase, refinance, or release equity from business and investment properties. Unlike residential mortgages, commercial property finance is assessed primarily on the property's income-generating potential and the borrower's business strength, rather than personal income alone. The UK commercial mortgage market serves everyone from small business owners purchasing their first premises to institutional investors building property portfolios.
Commercial lending requires specialist knowledge—each property type, lease structure, and borrower profile requires careful analysis to match with appropriate lenders. High street banks offer commercial mortgages but often have restrictive criteria and slower processes. Specialist commercial lenders and challenger banks frequently offer more competitive terms, higher leverage, and faster decisions for complex cases.
UK Commercial Mortgage Market (2024-2025)
- • Typical interest rates: 5.5% - 9% per annum
- • Maximum LTV: 65-75% (higher for owner-occupied)
- • Minimum DSCR required: 1.20x - 1.40x
- • Standard loan terms: 5-25 years
- • Minimum loan amounts: From £50,000
- • Typical arrangement fees: 1% - 2%
How Do Commercial Mortgages Work?
Commercial mortgages differ fundamentally from residential lending. Lenders focus on two primary factors: the property's ability to service the debt (measured by DSCR) and the security value relative to the loan (LTV). Unlike residential mortgages where your salary determines affordability, commercial lending centres on rental income or business turnover.
1Investment Commercial Mortgages
For landlords purchasing tenanted commercial property as an investment. Affordability assessed on rental income from tenants, with DSCR being the key metric.
- ✓ Based on rental income
- ✓ LTV typically 65-70%
- ✓ Tenant covenant matters
- ✓ Lease length affects terms
2Owner-Occupied Commercial Mortgages
For businesses purchasing premises to trade from. Assessed on business accounts and trading history rather than rental income.
- ✓ Based on business accounts
- ✓ Higher LTV available (up to 80%)
- ✓ Often better rates
- ✓ 2-3 years accounts needed
Understanding DSCR (Debt Service Coverage Ratio)
DSCR measures how comfortably the property's rental income covers the mortgage payments. It's calculated by dividing annual rental income by annual debt service (mortgage payments). Most lenders require minimum DSCR of 1.25x, meaning rental income must be at least 125% of mortgage payments, providing a buffer for voids, maintenance, and rate rises.
DSCR Example Calculation
Property with £60,000 annual rent and £48,000 annual mortgage payments = DSCR of 1.25x. This meets most lenders' minimum requirements, but a DSCR of 1.4x+ will access better rates and terms.
Commercial Property Types We Finance
Offices
Single office units, serviced offices, business centres, and multi-let office buildings. Strong tenant covenants improve lending terms.
- • Single-let offices
- • Multi-let buildings
- • Business centres
Retail
High street shops, retail parks, convenience stores, and shopping centres. Location and tenant quality are critical factors.
- • High street units
- • Retail warehouses
- • Convenience stores
Industrial
Warehouses, distribution centres, light industrial units, and workshops. Industrial lending has strengthened with e-commerce growth.
- • Warehouses
- • Distribution centres
- • Industrial estates
Mixed-Use
Properties combining commercial ground floor with residential above. Popular in town centres and high streets.
- • Shop with flat above
- • Offices with apartments
- • Pub/restaurant with accommodation
Leisure & Hospitality
Pubs, restaurants, hotels, and leisure facilities. Often requires specialist lenders with sector expertise.
- • Pubs & restaurants
- • Hotels & B&Bs
- • Gyms & leisure centres
Healthcare
Care homes, medical centres, pharmacies, and dental practices. Specialist sector with dedicated lenders.
- • Care homes
- • Medical centres
- • Dental practices
Commercial Mortgage Costs Explained
Commercial mortgage costs vary significantly based on property type, borrower profile, and market conditions. Understanding the full cost structure helps you budget accurately and compare different offers effectively.
| Cost Component | Typical Range | Notes |
|---|---|---|
| Interest Rate | 5.5% - 9% p.a. | Variable or fixed options available |
| Arrangement Fee | 1% - 2% | Usually paid on completion |
| Valuation Fee | £1,000 - £5,000+ | Depends on property value/complexity |
| Legal Fees | £2,000 - £5,000+ | Borrower pays lender's legal costs |
| Broker Fee | 0.5% - 1% | If using a commercial broker |
| Exit Fee | 0% - 1% | Some lenders charge, many don't |
Frequently Asked Questions About Commercial Mortgages
What LTV can I get on a commercial mortgage?
Maximum LTV varies by property type and whether the property is tenanted or owner-occupied. Investment commercial mortgages typically max out at 65-70% LTV. Owner-occupied premises can often achieve 75-80% LTV as lenders view owner-occupier commitment favourably. Specialist properties (pubs, care homes, hotels) may have lower LTV limits of 60-65% due to higher risk profiles. Higher deposits result in better interest rates and terms.
What accounts do I need for a commercial mortgage?
For investment properties, lenders focus on the property's rental income, so tenant leases and rental payment history are most important. For owner-occupied premises, you'll typically need 2-3 years of business accounts, management accounts if year-end is more than 9 months old, and business bank statements. Start-ups may need additional security or personal guarantees. Some challenger lenders work with 1 year's accounts or even project lending for strong proposals.
How long does a commercial mortgage take?
Commercial mortgages typically take 6-12 weeks to complete, longer than residential mortgages due to more complex due diligence requirements. Key factors affecting timeline include valuation complexity, lease review, legal title investigation, and borrower documentation. Straightforward cases with clear title and strong documentation can complete in 4-6 weeks. Complex multi-let properties or those requiring additional reports may take 12+ weeks.
Can I get a commercial mortgage with bad credit?
Commercial lending is more flexible on personal credit than residential mortgages. While high street banks typically require clean credit, specialist commercial lenders will consider borrowers with adverse credit history if the property income is strong. Expect higher rates and possibly lower LTV limits. Recent bankruptcy or current CCJs may require specialist adverse credit lenders. Demonstrating improved financial management and clear explanation of past issues helps significantly.
What's the difference between repayment and interest-only?
Repayment mortgages pay both interest and capital each month, reducing the loan balance over the term until fully paid.Interest-only mortgages pay only the interest monthly, with the full capital due at term end or refinanced. Most commercial investment mortgages are interest-only, maximising cash flow and allowing investors to benefit from capital appreciation separately. Owner-occupied commercial mortgages are often repayment basis, building equity in the business premises. Interest-only typically has lower monthly costs but requires an exit strategy for capital repayment.
Do I need a personal guarantee for a commercial mortgage?
Most commercial mortgages require personal guarantees from directors or shareholders, making them personally liable if the company defaults. Some lenders offer limited personal guarantees (capped at a percentage) or non-recourse lending for strong deals with substantial equity. Personal guarantees are typically unlimited and can extend to all personal assets. Professional advice before signing is essential. Established portfolios with strong track records may negotiate reduced guarantee requirements.
Who Uses Commercial Mortgages?
Property Investors
Building commercial property portfolios for rental income and capital growth.
Business Owners
Purchasing premises for their own business operations.
Landlords
Diversifying from residential into commercial investment.
Pension Funds
SIPP and SSAS pension schemes investing in commercial property.
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Why Choose CMB for Commercial Mortgages?
Commercial Mortgages Broker is a trading style of CMB Finance Ltd. We are a provider of non-regulated lending solutions. Your property may be repossessed if you do not keep up repayments on your mortgage or any other debt secured on it.