How Commercial Mortgage Rates Work
The interest rate on a **commercial mortgage** is the single biggest factor determining your ongoing borrowing costs. Unlike residential mortgages, where rates are heavily commoditised and easily compared, commercial mortgage pricing is far more bespoke. Each deal is individually assessed, and the rate you receive depends on a complex interplay of property, borrower, and market factors.
Understanding how rates are structured and what influences them puts you in a stronger position to negotiate and secure the best terms available. This guide breaks down everything you need to know about [commercial mortgage](/services/commercial-mortgages) rates in the UK.
Types of Commercial Mortgage Rate
Commercial mortgage rates fall into three main categories, each with distinct advantages and risks.
Fixed Rates
A **fixed rate** locks your interest rate for a set period, typically 2 to 10 years. Your monthly payments remain the same regardless of what happens to underlying interest rates.
**Advantages:**
- Payment certainty for budgeting and cash flow planning
- Protection against rising interest rates
- Easier to stress-test business projections
**Disadvantages:**
- Typically higher initial rate than variable equivalents
- Early repayment charges (ERCs) apply during the fixed period
- No benefit if interest rates fall
Fixed rates are particularly popular with owner-occupiers who value payment certainty and investors with tight yield margins. They are priced based on **swap rates** (the interbank cost of fixing interest rates for a given period) plus the lender's margin.
For example, if the 5-year swap rate is 3.50% and the lender's margin is 2.75%, the fixed rate would be 6.25%.
Variable Rates
A **variable rate** (sometimes called a standard variable rate or SVR) is set by the lender and can change at their discretion. It is not directly tied to any external benchmark.
**Advantages:**
- Often lower initial cost than fixed rates
- May fall if the lender reduces its SVR
- Typically lower or no early repayment charges
**Disadvantages:**
- Payments can increase without warning
- Difficult to budget long-term
- Lender has full discretion over rate changes
Variable rates are less common in the commercial mortgage market than they once were, as most lenders now prefer to price over a transparent benchmark.
Tracker Rates
A **tracker rate** follows the Bank of England base rate (or sometimes SONIA) by a fixed margin. If the base rate rises by 0.25%, your rate rises by 0.25%. If it falls, your rate falls.
**Advantages:**
- Full transparency, as your margin above the benchmark is fixed
- Direct benefit when base rate falls
- Often the lowest initial rate available
**Disadvantages:**
- Payments rise when base rate increases
- Less certainty for long-term budgeting
- Can become expensive in a rising rate environment
Tracker rates are popular with borrowers who believe interest rates will remain stable or fall, or who want maximum flexibility without early repayment penalties.
**Key Takeaway:** There is no universally "best" rate type. The right choice depends on your risk appetite, cash flow requirements, and view on the direction of interest rates. Many borrowers benefit from discussing the options with an experienced broker before committing.
What Affects Your Commercial Mortgage Rate?
Commercial mortgage rates are not one-size-fits-all. Lenders price each deal individually based on several risk factors:
Loan-to-Value (LTV)
The single most important factor. Lower LTV means lower risk for the lender, which translates to a better rate. The pricing difference between 50% LTV and 75% LTV can be 1-2% or more.
| LTV Band | Typical Rate Premium |
|---|---|
| Up to 50% | Lowest rates available |
| 50-60% | Modest premium |
| 60-70% | Standard pricing |
| 70-75% | Noticeable premium |
| 75%+ | Significant premium (specialist lenders) |
Property Type and Quality
Mainstream property types in good locations attract better rates. Lenders view standard offices, retail units, and industrial warehouses as lower risk than specialist properties such as pubs, care homes, or petrol stations.
- Prime office/industrial: Lowest rates
- Standard retail: Moderate rates
- Leisure and hospitality: Higher rates
- Specialist/niche: Highest rates
Borrower Strength
Your financial track record, experience, and overall net worth influence the rate. A well-capitalised borrower with years of property experience will secure better terms than a first-time buyer with limited assets.
Loan Size
Larger loans often attract marginally better rates due to economies of scale. Very small loans (under £100,000) can be disproportionately expensive due to the fixed costs of underwriting.
Lease and Tenant Quality
For investment properties, the quality of the tenant and the lease terms significantly affect pricing. A property let to a blue-chip tenant on a long lease with upward-only rent reviews will attract the best rates. Short leases, weak tenant covenants, or vacant properties push rates higher.
Market Conditions
The broader interest rate environment, driven by Bank of England monetary policy, gilt yields, and swap rates, sets the baseline for all commercial mortgage pricing. Lender competition also plays a role: when capital is abundant, margins tighten; when markets are stressed, margins widen.
Current Rate Environment in the UK
The UK commercial mortgage market has experienced significant rate movements since 2022. After the rapid base rate increases from 0.10% in late 2021 to 5.25% by mid-2023, rates have settled at historically elevated levels compared to the ultra-low period of 2009-2021.
As of early 2026, typical commercial mortgage rates range from approximately:
- High street banks: 5.5-7.5% (fixed or tracker)
- Challenger banks: 6.5-9.0%
- Specialist lenders: 7.0-12.0%
These are indicative ranges only. Your actual rate will depend on the specific factors outlined above. Use our [commercial mortgage calculator](/calculators/commercial-mortgage) to model different rate scenarios.
How Swap Rates Affect Fixed Rates
If you are considering a fixed-rate commercial mortgage, understanding **swap rates** is essential. Swap rates represent the cost to a lender of fixing its own funding for a given period, and they form the base upon which fixed-rate mortgages are priced.
- 2-year swap rate influences 2-year fixed mortgage rates
- 5-year swap rate influences 5-year fixed mortgage rates
- 10-year swap rate influences 10-year fixed mortgage rates
Swap rates move independently of the Bank of England base rate. They are driven by market expectations for future interest rates, inflation, and economic conditions. It is entirely possible for the base rate to fall while swap rates rise (or vice versa) if market expectations for the future diverge from current policy.
Your broker should be able to advise on current swap rate levels and whether they represent good value for fixing.
How SONIA Affects Tracker and Variable Rates
**SONIA** (Sterling Overnight Index Average) has replaced LIBOR as the primary benchmark for variable-rate commercial lending in the UK. SONIA reflects the actual overnight borrowing costs in the sterling money markets and closely tracks the Bank of England base rate.
Most tracker commercial mortgages are now priced as SONIA plus a fixed margin. For example, SONIA + 3.00% means your rate adjusts automatically as SONIA moves, with your margin remaining constant throughout the term.
Tips for Securing the Best Rate
While you cannot control market conditions, there are several steps you can take to position yourself for the best possible rate:
- Maximise your deposit or equity: Every percentage point of additional equity typically improves your rate
- Prepare comprehensive documentation: Clean, well-organised accounts and financial information demonstrate professionalism and reduce lender risk perception
- Strengthen tenant covenants: For investment properties, securing strong tenants on longer leases before applying can improve your rate
- Consider the total cost, not just the rate: A slightly higher rate with no arrangement fee may be cheaper overall than a lower rate with a 2% fee
- Use a whole-of-market broker: Different lenders have different appetites at any given time. A broker who knows the market can identify which lenders are competing hardest for your type of business
- Time your application: If swap rates are volatile, your broker can advise on whether to lock in quickly or wait
**Key Takeaway:** The cheapest headline rate is not always the best deal. Consider arrangement fees, exit fees, flexibility, and the lender's reputation for service when comparing options.
Fixed vs Variable: Which Should You Choose?
This is the question every commercial mortgage borrower faces. Here is a framework to guide your decision:
**Choose fixed if:**
- You need certainty for business planning or investor returns
- You believe interest rates may rise further
- Your margins are tight and cannot absorb payment increases
- You plan to hold the property for the full fixed term
**Choose tracker/variable if:**
- You want maximum flexibility to repay early without penalties
- You believe interest rates will fall or remain stable
- You have comfortable margins that can absorb modest rate increases
- You may sell or refinance within a shorter timeframe
Many borrowers opt for a blended approach, fixing a portion of their debt for certainty while keeping the remainder on a tracker for flexibility.
Next Steps
Commercial mortgage rates are highly individual. The best way to understand what rate you can achieve is to speak with a specialist broker who can assess your specific circumstances and approach the market on your behalf.
At Commercial Mortgages Broker, we work with the full spectrum of UK commercial lenders, from high street banks like **Lloyds** and **NatWest** to challengers like **Aldermore** and **Shawbrook**, and specialists like **Investec** and **Paragon**. [Contact us](/contact) for a no-obligation discussion about your commercial mortgage requirements.
*Written by Matt Lenzie, Founder of Commercial Mortgages Broker. Ex-Lloyds Bank & Bank of Scotland.*