Commercial Mortgage Rates: A Complete Guide

Commercial mortgages are a cornerstone for businesses looking to purchase, refinance, or expand their property holdings.

With commercial mortgages still being expensive, although hope is on the horizon, understanding the intricacies of commercial mortgage rates can save you significant time and money, that benefit your business in the long run.

In this blog post, we’ll delve into everything you need to know about commercial mortgage rates, from how they are calculated to current market trends (updated for March 2025) and tips for securing the best rates.

What Are Commercial Mortgage Rates?

Commercial mortgage rates are the interest rates charged on loans used to purchase or refinance commercial properties.

These rates can vary widely based on several factors, including the type of property, the borrower’s creditworthiness, and market conditions.
 

What Is the Current Average Commercial Mortgage Rate?

As of July 2024, the average current commercial mortgage rate in the UK hovers around 3.5% to 5% annually.

However, these rates can fluctuate based on economic conditions, individual lender criteria and many other factors mentioned throughout this resource with rates rising up to nearly 12% in some cases where lenders perceive there to be higher risk.

Using a commercial mortgage calculator, you can estimate your monthly repayments based on typical rates like these. To get a more accurate idea, continue reading to learn what information you’ll need to calculate a tailored rate based on your unique financial situation.

How Are Commercial Mortgage Rates Calculated?

Commercial mortgage rates are determined through a multifaceted evaluation process that considers various elements influencing the lender's perceived risk and potential return on investment. Understanding these factors can empower borrowers to better navigate the lending landscape and secure more favourable terms.

Key factors include:

Loan Amount: The size of the loan plays a crucial role in determining interest rates. Larger loans often benefit from economies of scale, which can result in lower interest rates. This is because the administrative costs and risk are spread over a larger sum, making it more cost-effective for lenders to offer competitive rates.

Loan Duration: The length of the loan term significantly impacts the interest rate. While longer-term loans might come with higher interest rates due to the extended risk exposure for lenders, they typically offer the advantage of lower monthly payments, making them attractive for businesses seeking manageable cash flow.

Creditworthiness: A borrower’s credit profile is a critical determinant of the interest rate. Those with robust credit scores and a solid financial history are perceived as lower risk, often qualifying for more attractive rates. Lenders assess creditworthiness through credit reports, financial statements, and past borrowing behaviour to gauge the likelihood of timely repayments.

Loan-to-Value (LTV) Ratio: The LTV ratio is a pivotal factor in rate determination. A lower LTV ratio, where the loan amount constitutes a smaller percentage of the property's appraised value, generally results in lower interest rates. This is because a lower LTV indicates a higher equity stake by the borrower, reducing the lender's risk.

Property Type and Condition: The nature and condition of the commercial property also influence interest rates. Properties in prime condition and desirable locations are seen as less risky, often attracting lower rates. Conversely, properties requiring significant refurbishment or located in less favourable areas may incur higher rates due to the increased risk of depreciation or vacancy.

Market Conditions: Prevailing economic conditions and market demand can cause fluctuations in interest rates. During periods of economic growth, rates may rise due to increased demand for capital, whereas economic downturns might see rates decrease as lenders compete for fewer borrowers.

Lender’s Criteria: Each lender has unique risk appetites and lending criteria, which can lead to variations in the rates offered. Factors such as the lender's financial health, strategic goals, and competitive positioning in the market can influence their willingness to offer certain rates. Understanding a lender's specific criteria can help borrowers tailor their applications to meet those expectations, potentially securing better terms.

How Have Commercial Mortgage Rates Changed Over Time?

Commercial mortgage rates have seen significant fluctuations over the past decade, influenced by economic cycles, monetary policy, and market demand.

Historically, rates have ranged from as low as 2% during economic booms to over 6% during periods of financial uncertainty.

What Are the Current Market Trends for Commercial Mortgage Rates? (Updated for March 2025)

As of early 2025, the UK commercial mortgage market continues to be influenced by central bank policies and prevailing economic conditions. Interest rates for commercial mortgages currently range from 6.19% to 14% per annum, reflecting ongoing inflationary pressures and adjustments in lending strategies across the industry. 

Market Sector Performance:

• Industrial Properties: Logistics-focused assets remain relatively stable, though some moderation in demand has been noted.
  
  
• Office Market: High vacancy rates persist, driven by shifts to hybrid work models and reduced demand for traditional office spaces. Notably, Landsec plans to sell £2 billion of office properties, reducing its office holdings from 65% to about one-third of its £10 billion portfolio by 2030, and shifting focus towards residential properties.
  
  
• Multifamily Properties: These continue to attract strong interest due to high rental demand amid elevated homebuying costs.
  
  
• Retail Properties: Demand remains steady for outlets catering to daily essentials, while discretionary-focused retail experiences weaker trends.
  
  

Loan-to-Value (LTV) Ratios and Lending Criteria:

Lenders are exhibiting increased caution, tightening criteria for higher-risk asset classes, which impacts LTV ratios. Generally, commercial mortgage LTVs range from 50% to 75%, with more favourable terms for stable, income-generating properties. Some lenders, such as Metro Bank, have expanded their commercial mortgage offerings by increasing the maximum LTV ratio from 70% to 75% for large commercial mortgages. However, recent data indicates that loan-to-value ratios are at historic lows, with the lowest LTV being offered for secondary logistics at 52%, reflecting uncertain market conditions and declining property values. citeturn0search5

Borrowing Options:

• Fixed-Rate Mortgages: Remain viable for terms ranging between 5 and 15 years, depending on the lender and market segment.
  
  
• Variable-Rate Mortgages: These are harder to predict, as they are influenced by index-linked rates, borrower profiles, and property performance.

Are Commercial Mortgage Rates Fixed or Variable?

Commercial mortgage rates can be either fixed or variable:

• Fixed Interest Rates: The interest rate remains constant throughout the loan term, providing predictable repayment amounts. This option is ideal for borrowers who prefer stability and certainty in their budgeting.
  
  
• Variable Interest Rates: The interest rate can fluctuate based on market conditions or the lender’s base rate. While this option may offer lower initial rates, it carries the risk of rate increases over time.
  
  

How Can Interest Be Repaid on a Commercial Mortgage?

Interest on a commercial mortgage can be repaid in several ways, depending on the terms agreed upon with the lender:

• Monthly Payments: Regular monthly interest payments throughout the loan term.
  
  
• Interest-Only Payments: Paying only the interest for a specified period, with the principal repaid at the end of the term.
  
  
• Capital and Interest Payments: Paying both the interest and a portion of the principal each month, reducing the loan balance over time.
  
  

How Do You Get the Best Commercial Mortgage Rates?

To secure the best commercial mortgage rates, consider the following strategies:

• Improve Credit Score: A higher credit score can lead to more favourable rates. Check your credit report for errors and take steps to improve your credit history.
  
  
• Lower LTV Ratio: A lower loan-to-value ratio can reduce the perceived risk for lenders. Provide a larger deposit or use additional collateral.
  
  
• Negotiate Terms: Engage in negotiations with lenders to secure better terms and rates. Use competing offers as leverage.
  
  
• Use a Broker: Consider using a finance broker, like Finance Nation, who can leverage their network to find the best deals, by comparing commercial mortgage deals they can confidently secure some of the best rates and terms available to you. 
  
  
• Present a Strong Business Plan: A clear and viable business plan can reduce the lender’s risk and lead to better rates.
  
  

How Long Are Commercial Mortgage Terms?

Commercial mortgage terms typically range from 5 to 25 years, with some lenders offering terms up to 30 years. The term length can impact the interest rate and monthly repayment amounts.

What Other Costs Are Involved with Commercial Mortgages?

In addition to interest rates, borrowers should be aware of several other costs associated with commercial mortgages, including:

• Arrangement Fees: Fees charged by the lender for setting up the loan.
  
  
• Valuation Fees: Costs for property valuation to determine the loan amount.
  
  
• Legal Fees: Fees for legal services related to the loan agreement.
  
  
• Exit Fees: Fees charged for early repayment of the loan, if applicable.
  
  
• Broker Fees: Fees for services provided by a finance broker, if used.
  
  

What Is the Impact of Credit Scores on Commercial Mortgage Rates?

Credit scores play a significant role in determining commercial mortgage rates. Borrowers with higher credit scores are perceived as lower risk and are more likely to secure lower interest rates.

Conversely, those with lower credit scores may face higher rates due to the increased risk for lenders.

Credit Scores and Average Interest Rates

How Does the Loan-to-Value (LTV) Ratio Affect Commercial Mortgage Rates?

The loan-to-value (LTV) ratio is a key factor in determining commercial mortgage rates. A lower LTV ratio, where the loan amount is a smaller percentage of the property’s value, typically results in lower interest rates. Borrowers can achieve a lower LTV ratio by providing a larger commercial mortgage deposit or using additional collateral.

Common LTV Ratios and Average Interest Rates

Understanding these ratios can help you plan your financing strategy effectively. By aiming for a lower LTV ratio, you can secure more favourable interest rates, ultimately saving your business money over the life of the loan.

It's crucial to understand that the interest rates provided in the tables above are guideline rates. Actual rates can vary significantly based on numerous other factors mentioned.

How Do Different Types of Commercial Mortgage Affect Rates?

Different types of commercial mortgages can have varying interest rates based on their specific characteristics and purposes:

• Owner-Occupied Mortgages: Often called semi-commercial mortgages, they generally have lower rates as the property is used for the borrower’s business operations.
  
  
• Investment Mortgages: May have higher rates due to the additional risk associated with rental income and property management.
  
  
• Development Mortgages: Used for property development, these loans may have higher rates due to the risks associated with construction projects.
  
  

Can You Negotiate Commercial Mortgage Interest Rates?

Yes, you can negotiate commercial mortgage interest rates. While lenders have standard rates, they often have some flexibility based on the borrower’s profile and the specifics of the loan. Here’s how you could approach a negotiation:

• Direct Negotiation: Engage directly with the lender to discuss your financial situation and the specifics of your loan.
  
  
• Leverage Competing Offers: Obtain quotes from multiple lenders and use these offers as leverage in your negotiations.
  
  
• Highlight a Strong Business Plan: Clearly outline your business plan and financial projections.
  
  
• Negotiate Fees: In addition to interest rates, discuss other fees associated with the loan.
  
  
• Use a Broker: Consider using a finance broker, like Finance Nation, who can negotiate on your behalf.
  
  

How Can a Commercial Mortgage Broker Help You?

Established Relationships with Lenders

Commercial mortgage brokers have long-standing relationships with a wide network of lenders. These connections allow them to access exclusive deals and negotiate better terms on your behalf, often resulting in more favourable interest rates and loan conditions.

Expert Negotiation Skills

Brokers are skilled negotiators who understand the intricacies of the lending market. They can leverage their expertise to negotiate the best possible terms for your loan, including lower interest rates, reduced fees, and more flexible repayment options.

Time-Saving Application Process

Navigating the commercial mortgage application process can be time-consuming and complex. A broker can streamline this process by handling all the paperwork, liaising with lenders, and ensuring that all necessary documentation is submitted correctly and promptly.

Tailored Expert Advice

Every business has unique financial needs and goals. A commercial mortgage broker can provide personalised advice tailored to your specific circumstances, helping you understand the various loan options and guiding you towards the best solution for your business.

Access to a Wide Range of Products

Brokers have access to a broad spectrum of mortgage products from various lenders, including some that may not be available to the general public. This extensive range of options allows them to perform a commercial mortgage comparison, that will likely result in securing the best rates and terms available on the market whilst saving you time and effort. 

Assistance with Complex Cases

If your financial situation is complex or if you have unique borrowing needs, a broker can be particularly helpful. They have experience dealing with a variety of scenarios, including poor credit histories and unconventional property types.

Ongoing Support and Guidance

A good broker provides ongoing support throughout the life of your mortgage. They can assist with refinancing, offer advice on managing your repayments, and help you adjust your loan terms as your business needs evolve.

Finance Nation

If you want to dive straight into exploring options for commercial mortgages, you're already in the right place.

Finance Nation is a finance broker that understands the challenges faced by businesses seeking the most time and cost-effective solutions, and we're here to help.

With our cutting-edge Fintech platform, we ensure seamless access to tailored solutions that suit your needs.

With access to lending products you might not find elsewhere, we'll identify the best deals for you and keep things moving until the funds are where they need to be.

Contact us now and book a call so we can work out your next best step forward!