Remortgaging Commercial Property: A Complete Guide
**Remortgaging** a commercial property involves replacing your existing mortgage with a new one, either with your current lender (a product transfer) or a different lender (a full remortgage). It is one of the most effective ways to reduce costs, release equity or restructure your finance as your business and the market evolve.
At **Commercial Mortgages Broker**, we help business owners and property investors across the UK remortgage commercial properties to achieve better rates, release capital and align their finance with their current objectives.
When Should You Consider Remortgaging?
There are several scenarios where remortgaging commercial property makes clear financial sense.
Your Fixed Rate Is Ending
When a fixed-rate period expires, your mortgage typically reverts to the lender's **standard variable rate** (SVR), which is almost always higher than competitive fixed or tracker rates available in the market. This is the most common and straightforward reason to remortgage.
Start exploring your options 3-6 months before your fixed rate ends. This gives sufficient time to arrange a new facility without gaps or penalties.
Interest Rates Have Fallen
If the **Bank of England base rate** has decreased since you arranged your mortgage, or market competition has driven commercial mortgage rates lower, remortgaging could save you thousands of pounds per year.
Example Rate Savings
| Loan Balance | Current Rate | New Rate | Annual Saving |
|---|---|---|---|
| £500,000 | 6.5% | 4.5% | £10,000 |
| £1,000,000 | 7.0% | 5.0% | £20,000 |
| £2,000,000 | 6.0% | 4.5% | £30,000 |
Even a 0.5% reduction on a £1 million loan saves £5,000 per year in interest.
You Want to Release Equity
**Equity release** through remortgaging allows you to access the value that has built up in your property. This is particularly relevant if:
- Property values have increased since your original purchase
- You have been making capital repayments, reducing your loan balance
- You need funds for business expansion, property improvements or other investments
For example, if your property is now worth £800,000 and your current mortgage balance is £400,000 (50% LTV), remortgaging at 70% LTV would release up to £160,000 in cash.
Your Circumstances Have Changed
Changes in your business or personal situation may warrant a different mortgage structure:
- Growing business: May need a larger facility or different repayment terms
- Approaching retirement: May want to switch from interest-only to repayment to clear the debt
- Portfolio growth: Consolidating multiple properties under one lender for better terms
- Corporate restructure: Moving the property into an SPV or limited company
You Are Unhappy With Your Current Lender
Poor service, inflexibility on terms or concerns about your lender's financial stability are all valid reasons to move your commercial mortgage elsewhere.
**Key Takeaway:** Do not assume your current lender offers the best deal for a remortgage. The commercial mortgage market is competitive, and loyalty is rarely rewarded with the best rates.
The Remortgage Process
Step 1: Review Your Current Position
Before approaching lenders, understand your current situation:
- Current loan balance: How much do you owe?
- Current interest rate: What rate are you paying, and when does it end?
- Early repayment charges: What penalties apply if you leave early?
- Property value: What is the property worth today?
- Income position: Has your rental income or business income changed?
Step 2: Engage a Specialist Broker
A commercial mortgage broker provides access to the full market and can identify the most competitive options for your specific circumstances. This is particularly important for remortgages where timing, ERC avoidance and equity release calculations require careful planning.
Step 3: Obtain Valuations
The new lender will require a professional **RICS valuation** of the property. This establishes the current market value and determines the maximum LTV available.
Step 4: Application and Underwriting
The new lender assesses your application based on:
- Property value and condition
- Rental income or business performance (for owner-occupier properties)
- Your financial position and creditworthiness
- The property's compliance with current regulations (EPC, fire safety, etc.)
Step 5: Legal Process
Solicitors handle the legal transfer of the charge from the old lender to the new one. This typically takes 4-8 weeks.
Step 6: Completion
The new lender advances funds, the old mortgage is repaid and the new facility begins. Any equity release funds are transferred to you.
Early Repayment Charges
**Early repayment charges** (ERCs) are the most significant consideration when remortgaging before your current deal expires. Understanding ERCs is essential for calculating whether a remortgage makes financial sense.
How ERCs Work
ERCs are typically structured as a percentage of the outstanding loan balance, decreasing over the fixed-rate period:
| Year | Typical ERC |
|---|---|
| Year 1 | 5% |
| Year 2 | 4% |
| Year 3 | 3% |
| Year 4 | 2% |
| Year 5 | 1% |
On a £500,000 loan, a 3% ERC equals £15,000. This must be weighed against the savings from remortgaging.
Break-Even Calculation
To determine whether remortgaging early is worthwhile:
- Calculate the ERC cost
- Calculate the annual saving from the new rate
- Divide the ERC by the annual saving to find the break-even period
**Example**: £15,000 ERC with £10,000 annual saving = 1.5 year break-even. If you plan to hold the property for several more years, remortgaging early makes sense despite the penalty.
ERC-Free Periods
Some commercial mortgages allow penalty-free repayment of 10-20% of the balance per year. Others have no ERCs after the fixed period ends. Check your mortgage terms carefully.
**Key Takeaway:** Always calculate the total cost of remortgaging (including ERCs, valuation fees, legal fees and arrangement fees) against the projected savings over the new mortgage term.
Equity Release Through Remortgaging
Releasing equity from a commercial property is one of the most tax-efficient ways to access capital. Unlike selling the property (which may trigger Capital Gains Tax), borrowing against equity is not a taxable event.
Common Uses for Released Equity
- Purchasing additional properties: Building a commercial property portfolio
- Business investment: Funding expansion, equipment or working capital
- Property improvements: Enhancing the property to increase rental income or value
- Debt consolidation: Replacing expensive short-term borrowing with lower-cost mortgage finance
- Personal use: No restrictions on use, though lenders will want to understand the purpose
Maximum Equity Release
The amount you can release depends on:
- Current property value: Confirmed by RICS valuation
- Maximum LTV: Typically 65-75% for commercial property remortgages
- Existing mortgage balance: Deducted from the new facility amount
- Debt service: The property must generate sufficient income to service the increased borrowing
Switching From Interest-Only to Repayment
Many commercial mortgages are structured on an **interest-only** basis. If you want to start repaying capital, a remortgage provides the opportunity to restructure onto a **capital and interest repayment** basis.
Reasons to switch include:
- Building equity in the property over time
- Reducing the balance before retirement
- Meeting lender requirements that may have changed since your original mortgage
- Reducing overall interest costs (you pay less interest as the balance reduces)
Conversely, if you currently have a repayment mortgage and want to reduce monthly costs, switching to [interest-only](/knowledge-hub/interest-only-commercial-mortgages) on a remortgage is also possible.
Costs of Remortgaging
Understand the full cost of remortgaging before proceeding:
- Arrangement fee: 0.5% - 2% of the new loan amount
- Valuation fee: £500 - £3,000+ depending on property value
- Legal fees: £1,500 - £5,000 for both your solicitor and the lender's
- Broker fee: Often covered by lender commission, though some brokers charge an additional fee for complex cases
- Early repayment charge: As discussed above, potentially the largest cost
Total remortgage costs typically range from £5,000 to £20,000+ depending on the loan size and complexity.
Lenders for Commercial Remortgages
The commercial remortgage market includes:
- High-street banks: Lloyds, NatWest, Barclays and HSBC all offer commercial remortgage facilities
- Challenger banks: Shawbrook, Aldermore, Allica Bank and Paragon often provide more competitive rates or flexible criteria
- Specialist lenders: For complex situations, unusual properties or higher LTV requirements
A broker ensures you access the best available terms from across the full market.
Common Remortgage Pitfalls
Not Starting Early Enough
Begin the process 3-6 months before your current deal expires. Commercial mortgages take time to arrange, and leaving it too late may result in paying SVR for months.
Ignoring Total Costs
A lower rate does not always mean a better deal. Compare the total cost of the new mortgage (including all fees) against your current arrangement over the intended term.
Underestimating Property Condition
The new lender will require a fresh valuation. If the property has deteriorated or fails to meet current EPC requirements, this could affect the valuation and your available options.
Overlooking Lease Issues
For investment properties, the new lender will scrutinise the existing lease. Short unexpired lease terms, break clauses or tenant financial difficulties could complicate the remortgage.
How CMB Can Help
Our team reviews your current commercial mortgage and compares it against the full market to identify the best remortgage options. We handle the entire process from initial assessment through to completion, ensuring you achieve the best possible outcome.
[Contact us](/contact) for a free commercial remortgage review.
Frequently Asked Questions
Below are the most common questions we receive about remortgaging commercial property.
*Written by Matt Lenzie, Founder of Commercial Mortgages Broker. Ex-Lloyds Bank & Bank of Scotland.*