A commercial mortgage funds a property for business use or investment rather than residential occupation. This guide covers the fundamental split between owner-occupier and investment lending, how affordability is actually assessed on each basis, current rates and LTV, and the early repayment charge detail worth reading before you sign.
Figures below reflect published 2026 commercial broker guidance, current to mid-2026, with the Bank of England base rate at 3.75% through much of the year. This is general education, not financial advice; commercial lending is genuinely bespoke to your business and property, so get quotes from a specialist broker.
1. Owner-occupier versus investment: the fundamental split
This single distinction changes almost everything about how a lender assesses the application, even where the physical building and loan amount are otherwise similar.
2. Rates and LTV in 2026
| Metric | Owner-occupier | Investment |
|---|---|---|
| Typical LTV | Up to 75-80% (some professional practices to 100%) | 60-75%, best rates at lower LTV |
| Indicative rate range | Roughly 5.5% to 7.5% | Roughly 6% to 9% |
| Deposit | 20-25% | 25-40% |
Rates are highly bespoke, driven by LTV, the strength of your business's financials or the tenant's covenant, property type, and prevailing market conditions. As a general pattern, moving from 75% LTV down to 60% LTV can reduce your rate by roughly 0.5 to 1.5 percentage points, since the lender's buffer against a forced sale is considerably larger at the lower LTV.
3. How affordability is actually tested
For an investment purchase, lenders use a Debt Service Cover Ratio (DSCR), the property's rental income needs to cover 120% to 150% of the mortgage payment, stress-tested at a rate roughly 1 to 2 percentage points above the actual pay rate. For an owner-occupier purchase, the lender instead assesses your business's trading profit (an EBITDA-based test), since the repayment is coming from the business itself rather than a third-party tenant's rent. Getting this wrong, or approaching a lender that specialises in the other test, is a common and avoidable reason applications stall.
4. Lender tiers: high street versus challenger banks
High street banks, the largest and most familiar names, typically offer the lowest rates for established, straightforward owner-occupier cases that fit their standard criteria, but often take 8 to 12 weeks to reach completion. Challenger banks and specialist commercial lenders are generally the more practical route for mixed-use property, shorter trading histories, or specialist property types, often moving faster and taking a more flexible, case-by-case underwriting approach, typically at a modest rate premium over the very best high-street pricing.
5. Fixed versus variable, and the early repayment trap
Commercial fixed-rate mortgages commonly carry early repayment charges of 3% to 5% in the early years, stepping down over the fixed period. If you intend to hold the property and the underlying business long term, a longer fix removes payment risk from your cash flow forecasting. If you expect to sell, refinance, or restructure within two or three years, a variable-rate deal, or a shorter fix with softer early repayment terms, often costs less overall once the ERC on leaving a long fix early is properly accounted for.
6. Specialist property types cost more
Specialist property types, care homes, hotels, pubs, and petrol stations among them, require lenders with specific sector expertise and typically carry higher rates, since the property's value is closely tied to the business trading from it, making the security genuinely harder for a lender to realise cleanly if the business fails. If you're considering one of these property types specifically, expect a narrower lender panel and more detailed underwriting of the trading business itself, not just the building.
7. Frequently asked questions
What's the difference between an owner-occupier and an investment commercial mortgage?
An owner-occupier commercial mortgage funds premises your own business trades from, and the lender assesses your business's trading accounts as the repayment source. An investment commercial mortgage funds a property let to tenants, and the lender assesses the rental income the property itself generates, a fundamentally different underwriting basis even though the loan is secured against similar types of buildings.
How much deposit do I need for a commercial mortgage?
Most commercial mortgages require a deposit of 25% to 40%. Owner-occupiers borrowing against premises they'll trade from can often reach 75% to 80% loan-to-value, so a 20% to 25% deposit, with some lenders offering up to 100% for certain professional practices. Commercial investment property typically caps at 65% to 75% loan-to-value.
What is DSCR and why does it matter for a commercial mortgage?
Debt Service Cover Ratio measures how comfortably a property's rental income covers its mortgage payment, generally needing to reach 120% to 150% of the payment, stress-tested at a rate 1 to 2 percentage points above the actual pay rate. It's the primary affordability test for investment commercial mortgages, in contrast to owner-occupier lending, which is assessed against trading profit instead.
Are early repayment charges different on commercial mortgages compared with residential ones?
Commercial fixed-rate mortgages commonly carry early repayment charges of 3% to 5% in the early years, stepping down over the fixed period, broadly similar in concept to residential ERCs but often calculated differently and worth checking the exact schedule for before signing, particularly if you might sell, refinance, or restructure within the fixed term.
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