Choosing between a fixed and variable rate on your commercial mortgage is one of the most important decisions you will make. This guide explains how fixed and variable commercial mortgage rates work, what affects your rate, and when each rate type makes sense for different borrowers in the current interest rate environment.
3
Fixed Rate Commercial Mortgage wins
4
Variable Rate Commercial Mortgage wins
2
Draws
Typical Rate
5.50% - 8.99% fixed
Term
2 - 10 year fixed period within a 3-25 year mortgage
Max LTV
75%
A fixed rate commercial mortgage locks your interest rate for a set period, typically 2-10 years. Your mortgage rate stays the same regardless of changes to the Bank of England base rate or wider market conditions. This gives borrowers certainty over their monthly payments during the fixed term.
Typical Rate
Base rate + 2.5% to 5% (variable)
Term
3 - 25 years
Max LTV
75%
A variable rate commercial mortgage has an interest rate that can change during the loan term. Variable rate mortgages are typically linked to the Bank of England base rate (tracker) or the lender's own standard variable rate (SVR). When the base rate changes, your rate and monthly payments change accordingly.
| Criterion | Fixed Rate Commercial Mortgage | Variable Rate Commercial Mortgage | Winner |
|---|---|---|---|
| Payment Certainty | Fixed monthly payments for the set period | Payments change with Bank of England base rate | A |
| Initial Rate | Often slightly higher than variable at outset | Can be lower initially, especially tracker products | B |
| Early Repayment Flexibility | Early repayment charges apply (typically 1-5% of outstanding) | Usually no early repayment charges on trackers | B |
| Protection Against Rate Rises | Fully protected during the fixed term | No protection — payments increase when rates rise | A |
| Benefit from Rate Cuts | No benefit — rate stays the same even if base rate falls | Full benefit — rate and payments decrease when base rate falls | B |
| Cash Flow Planning | Easy to forecast — payments are predictable | Harder to forecast — payments can change at any review date | A |
| Cost Over Full Term | Depends on rate environment — may cost more or less | Depends on rate environment — may cost more or less | Draw |
| Availability | Available from most commercial mortgage lenders | Available from most lenders — trackers more common than SVR | Draw |
| Refinance Flexibility | Penalised if refinancing during fixed period | Free to refinance at any time on most variable products | B |
Advantages
Disadvantages
Best for: Borrowers who want certainty, businesses with tight cash flow margins, and those who believe interest rates may rise during the mortgage term
Advantages
Disadvantages
Best for: Borrowers who want flexibility, those who plan to refinance or sell within a few years, and investors who believe interest rates will fall or remain stable
Before choosing between fixed and variable, it helps to understand the different types of commercial mortgage interest rate available in the UK commercial mortgage market. Each rate type carries different risk and reward characteristics.
Fixed rate — Your interest rate stays the same for a set period (2, 3, 5, 7, or 10 years). The interest rate stays fixed regardless of market conditions. At the end of the fixed term, you typically move to the lender's standard variable rate or refinance to a new fixed deals.
Tracker rate — A variable rate that tracks the Bank of England base rate plus a fixed margin. For example, base rate + 3.5% means if the base rate is 4.50%, your rate is 8.00%. If the base rate drops to 4.00%, your rate drops to 7.50%. Variable rate mortgages linked to trackers are transparent in how the rate can change.
Standard variable rate (SVR) — The lender's own variable rate, which the lender can change at any time. SVRs are often higher rate products than tracker rates and are less transparent because the lender has discretion over changes. Most borrowers refinance before moving onto the standard variable rate.
Capped rate — A variable rate with a ceiling. Your rate may fluctuate with market conditions but cannot exceed the cap. These are relatively rare in commercial lending but occasionally available as commercial mortgage options.
Discounted variable rate — A temporary discount applied to the lender's SVR for an initial rate period. For example, SVR minus 1% for the first two years. These rate products can offer attractive entry points. Unlike residential mortgages, commercial mortgages are typically offered with different rate structures and wider spreads. Commercial mortgages are typically priced with reference to swap rates for fixed deals and base rate for variable products.
The Bank of England base rate is the single most important factor affecting commercial mortgage rates in the UK. Both fixed and variable commercial mortgage rates are influenced by the base rate, but in different ways within the current interest rate environment.
Variable rate mortgages respond directly to base rate changes. If you have a tracker mortgage at base rate + 3.5% and the Bank of England raises the bank rate by 0.25%, your rate increases by 0.25% and your monthly payments rise accordingly. When rates change, your mortgage payment adjusts automatically.
Fixed rate mortgages are influenced by market expectations of future base rate movements, priced through swap rates. When markets expect rates to rise, fixed commercial mortgage rate products become more expensive. When markets expect rates to fall, fixed rate deals become cheaper. The fixed interest rate you lock in reflects the market's view of where interest rates in the UK are heading.
As of April 2026, the Bank of England base rate influences the entire interest rate environment for commercial lending. Commercial mortgage lenders price their commercial rates based on their cost of funding, which is directly linked to the base rate and swap rates. Different rates are available depending on the loan size, property type, and borrower profile.
Understanding the relationship between the base rate and your mortgage rate is essential for deciding between fixed and variable products. Use our commercial mortgage calculator to model different rate scenarios and see how rates change affect your monthly mortgage payments and total cost of borrowing.
Choosing a fixed commercial mortgage rate makes sense in several scenarios where payment certainty and budget stability are priorities:
You need certainty for business finance planning — If your business has tight cash flow margins or you are creating financial projections for investors or stakeholders, knowing exactly what your mortgage payment will be each month during the fixed term is valuable. A fixed interest rate provides predictable monthly payments throughout the set period.
You believe interest rates will rise — If market conditions and economic indicators suggest the Bank of England base rate may increase, locking in a fixed rate now protects you from higher rate payments later. In a rising interest rate environment, choosing a fixed commercial mortgage rate can save significant sums.
You have a long-term hold strategy — If you plan to own the commercial property for many years and do not intend to refinance or sell during the fixed period, the early repayment charge is irrelevant and you benefit from rate certainty. Best commercial mortgage rates for long-term holders are often fixed.
You are risk-averse — Some borrowers simply prefer the peace of mind of knowing their mortgage rate will not change. This is a perfectly valid reason to choose a fixed mortgage deal, even if variable products might be cheaper in some market conditions.
The fixed rate is competitive — In some interest rate environments, fixed commercial mortgage rates are only marginally higher than variable rates, making the certainty premium very affordable. When fixed vs variable spreads are narrow, fixed deals offer excellent value for commercial investment properties.
A variable rate commercial mortgage may be the better choice when flexibility and potential savings outweigh the need for certainty:
You expect interest rates to fall — If the Bank of England is expected to cut the base rate, a tracker mortgage means your rate and payments decrease automatically. Variable commercial mortgage rates benefit directly from lower interest rate environments.
You plan to sell or refinance — If you are likely to sell the property or refinance within 2–5 years, the absence of early repayment charges on most variable rate mortgages saves significant cost. Early repayment charge penalties on fixed rate deals can be 1–5% of the outstanding loan amount, which on a large commercial mortgage is a substantial sum.
You want maximum flexibility — Variable rate mortgages allow you to overpay, exit, or refinance without penalty. This flexibility is valuable for active investors who may want to restructure their portfolio or take advantage of a new mortgage offer.
Your cash flow can absorb rate increases — If your business or rental income provides a comfortable buffer above your monthly payments, you can afford to take the risk of variable rate mortgages in exchange for potentially lower interest costs.
Current variable rates are significantly lower — When there is a large gap between fixed and variable commercial mortgage rates, the savings from a variable rate product can be substantial, even after accounting for potential rate rises. Compare the loan rate on variable products against the fixed commercial mortgage rate to assess the premium you would be paying for certainty. Variable products give you best deals in declining rate environments.
The decision between fixed or variable rate on your commercial mortgage should be based on several practical considerations, not just your view on interest rate direction.
Loan size matters — On a large loan amount, even small rate differences translate to significant sums. A 0.5% rate difference on a £1 million mortgage is £5,000 per year. The larger the loan size, the more important the rate type decision and the more carefully you should evaluate fixed and variable rate options.
Cash flow needs — Do you need stable repayment to manage monthly obligations? Businesses with thin margins or seasonal income patterns often benefit from the predictability of a fixed rate. Properties with strong rental income and comfortable coverage can absorb variable rate fluctuations in their monthly payments.
Exit timing — If you know you will sell or refinance within a specific timeframe, check the early repayment charge schedule on fixed rate products. Sometimes the ERC makes a fixed deal uneconomical for your planned hold period during the rate period.
The current interest rate environment — In a rising rate environment, fixed rates offer protection. In a falling rate environment, variable rates deliver savings. Consider what the market expects over the next 2–5 years when choosing your mortgage term and rate type.
Blended approaches — Some borrowers split their borrowing between fixed and variable products. This hedges against both scenarios and is worth discussing with your commercial mortgage lender or broker. A combination of fixed and variable commercial mortgage rates — much like a buy-to-let mortgage split — across a portfolio can balance risk and opportunity.
Arrangement fee — Compare the total cost including the arrangement fee, not just the interest rate. A lower rate product with a higher arrangement fee may cost more overall, especially for shorter mortgage terms. This type of interest rate diversification is common. Capital and interest repayments should be modelled for both scenarios. Rates due at the end of the term should also be considered — falling onto a variable rate at the end of the fixed term can significantly increase costs.
Whether you choose fixed or variable, several factors influence the best rates and best deals you can achieve on your commercial mortgage:
Lower LTV — The more deposit or equity you bring, the better rates lenders offer. Moving from 75% to 65% LTV can reduce your rate by 0.5–1%. This applies to both owner-occupied mortgages and commercial investment mortgages.
Strong tenant covenants — For investment properties, blue-chip tenants on long leases attract better commercial mortgage interest rates than uncertain or short-term tenancy arrangements. The quality of income directly affects the rates available.
Clean credit history — Both personal and business credit histories affect your rate. Adverse credit does not prevent borrowing but will result in higher rates from specialist commercial lenders.
Loan size — Commercial lenders often offer different rates on larger loan amounts. There can be a significant rate difference between a £200,000 and a £2 million commercial mortgage. Larger loan amounts may attract lower interest rates.
Property type — Mainstream property types (offices, industrial, standard retail) attract better commercial rates than specialist sectors (pubs, care homes, leisure). Semi-commercial mortgage and commercial investment mortgages for standard property types generally offer competitive commercial rates.
Use a specialist broker — A commercial mortgage broker has access to the whole mortgage market and can negotiate best commercial mortgage rates you would not access directly. At Commercial Mortgages Broker, we work with over 100 commercial mortgage lenders to find the most competitive fixed and variable commercial mortgage options. Contact us for a rate comparison across the market, or explore our commercial mortgage services. You can also use our commercial mortgage calculator to model different rate scenarios for your business loans or commercial lending needs.
Related financial concepts:
Choose a fixed rate if you need payment certainty, have tight cash flow margins, or believe rates will rise. Choose a variable rate if you want flexibility, plan to sell or refinance soon, or believe rates will fall. For many borrowers, the answer is to discuss both options with a specialist commercial mortgage broker who can model the costs based on your specific circumstances.
Matt Lenzie, Founder of Commercial Mortgages Broker. Ex-Lloyds Bank & Bank of Scotland.
It depends on your view of interest rate direction and your need for certainty. If you believe rates will rise, fixed protects you. If you believe rates will fall, variable lets you benefit. In the current interest rate environment, many borrowers are choosing shorter fixed terms (2-3 years) to balance certainty with flexibility.
Commercial mortgages are available in both fixed and variable rate options. There is no default — it depends on the lender and the borrower's preference. Many commercial mortgage lenders offer both options, and your broker can model the cost of each for your specific situation.
The standard variable rate varies by lender. It is typically the lender's own benchmark rate, which can be changed at the lender's discretion. SVRs are generally higher than tracker rates and fixed rates, and most borrowers refinance before moving onto the SVR at the end of a fixed or discounted period.
You can switch, but doing so during a fixed rate period will typically trigger an early repayment charge. At the end of your fixed term, you can usually switch to a variable product or refinance to a new fixed deal without penalty. Planning your exit timing around the ERC schedule is important.
Early repayment charges on fixed commercial mortgage rates typically range from 1% to 5% of the outstanding loan amount, depending on the lender and how far into the fixed term you are. Some lenders use a declining scale (e.g., 5% in year 1, 4% in year 2, etc.), while others use a flat rate.
Most variable rate commercial mortgages, particularly tracker products, allow unlimited overpayments without penalty. This is one of the key advantages of variable rate products. Some lenders also allow partial overpayments on fixed rate products (typically up to 10% per year) without triggering the early repayment charge.