What is a commercial mortgage and how does it work?

What is a commercial mortgage? Let’s define it.

Imagine you’ve found the perfect business property, maybe a guesthouse by the coast, a pharmacy on a busy high street, or a children’s nursery near a growing community. You know it’s a good opportunity, but the purchase price is well beyond what you can cover outright. That’s where a commercial mortgage comes in.

A commercial mortgage loan is designed to help you buy or refinance this kind of property. Because it’s “secured lending,” the property itself is the safety net for the lender. In other words, if you can’t make repayments, the lender has the right to take ownership of the property.

These loans aren’t one-size-fits-all. They can be used to:

• Buy premises for your own business to operate from
• Refinance existing borrowing to secure better rates
• Release equity tied up in property to fund improvements or acquisitions
• Invest in additional premises as part of a wider portfolio

How does a commercial mortgage work?

At its core, a commercial mortgage works a lot like a home loan, but with a few key differences.

First, the deposit requirement is larger. Most lenders ask for between 25% and 40% of the property value up front. This means if you’re buying a care home worth £1 million, you may need £250,000 to £400,000 as a deposit.

Second, the interest rates are usually higher than those for residential mortgages. That’s because commercial lending is seen as higher risk. A hotel, for example, depends on seasonal trade, while a pharmacy may be influenced by local NHS contracts.

Third, lenders carry out detailed affordability checks. They’ll want to see business accounts, sector performance, and even your own industry experience. If you’re new to hospitality but applying for a hotel mortgage, you’ll need a strong business plan to reassure them.

Finally, repayment terms tend to be flexible. While residential mortgages often stretch over 25 to 30 years, commercial mortgages are more commonly 5 to 25 years, depending on the lender and your goals.

Think of it as a partnership. The lender wants to be confident your business can repay the loan, and you want terms that won’t overstretch your finances.

Types of commercial mortgage loans

Not all commercial mortgages are the same. Depending on your plans, you might come across a few different types.

• Owner-occupied commercial mortgages – Ideal if you’re buying the premises you’ll trade from, like a restaurant, bar, or veterinary surgery.
• Commercial investment mortgages – For those purchasing property to let out, such as shops, offices, or mixed-use buildings.
• Specialist sector mortgages – Tailored to industries like healthcare, childcare, or hospitality. These reflect the unique ways lenders assess value and risk in each sector.

For example, a lender will view a pub mortgage differently from a dental practice loan, because the income streams and property valuations differ. Working with a broker who understands these nuances can make the difference between approval and rejection.

Who can get a commercial mortgage?

You might be wondering whether a commercial mortgage is only for big companies. The answer is no. A wide range of people and businesses can apply.

Typical applicants include:

• First-time buyers purchasing their very first business, such as a guesthouse or day nursery
• Experienced operators expanding with a second care home, pub, or pharmacy
• Property investors looking to diversify with non-residential premises
• Sole traders, partnerships, and limited companies seeking long-term stability

Eligibility will always depend on the size of your deposit, your financial history, and how well your business plan stacks up. The good news is that even if high-street banks say no, independent brokers like Christie Finance often have access to lenders who take a broader view.

Benefits of a commercial mortgage

A commercial mortgage isn’t just a loan. It’s a strategic step for your business. Here are some of the main benefits:

• Long-term security – Fixed or variable repayments give you stability, which is especially valuable in unpredictable markets.
• Business asset ownership – Rather than paying rent, you’re building ownership in your own premises.
• Potential cost savings – Over time, owning can work out cheaper than leasing, especially if property values rise.
• Equity release opportunities – If your property increases in value, you may be able to refinance and release funds for expansion.
• Tailored terms – Loans are structured around your sector and business performance, rather than one-size-fits-all arrangements.

Owning your premises can also enhance your reputation with customers and investors. It shows long-term commitment and gives you more control over your operating environment.

Things to consider before applying

Before applying for a commercial mortgage, it’s worth thinking about a few key points.

• Deposit size – Do you have the 25% to 40% deposit needed?
• Additional costs – Beyond the deposit, you’ll need to budget for valuation fees, legal costs, and lender arrangement charges.
• Cash flow – Will your business generate enough income to cover repayments comfortably?
• Risk management – How would your business cope if interest rates rise or trading dips?

It’s not about putting you off, but about making sure you go in with a clear plan. The right preparation can save time and improve your chances of approval.

How Christie Finance can help

This is where we come in. At Christie Finance, we’ve been helping clients secure commercial mortgages since 1977. Because we’re an independent broker, we’re not tied to a single lender. That means we can compare options across the market and find a solution tailored to your sector and circumstances.

Whether you’re buying your first café, refinancing a pharmacy, or expanding your care group, we’ll:

• Review your financial position and goals
• Match you with lenders who understand your industry
• Structure and present your application to improve approval chances
• Handle the process from start to finish, saving you time and stress

Our experience spans hospitality, healthcare, childcare, retail, and more. Whatever your business, we’re here to make the finance side as straightforward as possible.

Explore our commercial mortgage services or try our mortgage calculator to see how repayments could work for you.

Commercial mortgages summed up

A commercial mortgage is simply a loan secured against a business property, designed to support growth, investment, or refinancing. They typically require a larger deposit than residential mortgages, but in return, they offer long-term stability and the chance to build equity in your business premises.

If you’re planning to buy or refinance a business property, the key is finding a lender who understands your sector. That’s where Christie Finance can help.

Contact Christie Finance today to discuss your options and take the first step toward securing the right finance for your business.

FAQs about commercial mortgages

1. How much deposit do I need for a commercial mortgage in the UK?

Most lenders require between 25% and 40% of the property value. The exact amount depends on the sector, your financial history, and the lender’s criteria.

2. Can I get a commercial mortgage without trading history?

Yes, but it may be harder. First-time buyers often need a strong business plan and a larger deposit to reassure lenders. Using a specialist broker can open doors to lenders more willing to consider new operators.

3. How long does it take to arrange a commercial mortgage?

It varies, but most commercial mortgage applications take 6 to 12 weeks from start to completion. Having all your documents ready and working with an experienced broker can speed things up.

4. Are commercial mortgage rates fixed or variable?

Both options are available. Fixed rates provide stability, while variable rates may offer lower initial costs but can change over time. A broker can help you decide which suits your goals.