How Much Does a Commercial Mortgage Cost?
The total cost of a commercial mortgage extends well beyond the headline interest rate. Business owners considering a commercial mortgage need to understand the full range of commercial mortgage fees, upfront costs, and ongoing charges to make an informed decision and budget accurately.
This guide breaks down every cost you are likely to encounter when taking out a commercial mortgage in the UK, with typical ranges for each fee and practical advice on how to reduce what you pay. Whether you are looking at the costs of a commercial mortgage for the first time or refinancing an existing loan, understanding these costs involved is essential.
Interest Rates: The Biggest Cost
The interest rate on your commercial mortgage is by far the largest cost over the life of the loan. Commercial mortgage interest rates in the UK typically range from 5.25% to 9.49% per annum, depending on several factors.
What Affects Your Interest Rate?
**Base rate** — Most commercial mortgage rates are linked to the Bank of England base rate. A tracker mortgage at base rate + 3.5% moves directly with Bank of England base rate decisions. Fixed rate products are priced off swap rates, which reflect market expectations of future base rate movements.
**LTV** — Lower loan to value ratios attract lower interest rates because the lender has more security. Moving from 75% to 60% LTV can reduce your rate by 0.5-1%.
**Property type** — Mainstream commercial properties (offices, standard retail, industrial) attract better rates than specialist sectors (pubs, care homes, leisure). A semi-commercial property with mixed residential and commercial elements may attract different rates depending on the lender.
**Borrower strength** — Business owners with strong trading history, clean credit history, and experience in commercial property tend to secure better rates.
**Loan amount** — Larger loan amounts often attract better rates because the lender spreads fixed costs over a bigger facility.
**Fixed rate vs variable rate** — A fixed rate product provides certainty over monthly payments but may carry a premium over a variable rate. The right commercial mortgage rate can make a significant difference to your total costs over the mortgage term.
Use our [commercial mortgage calculator](/calculators/commercial-mortgage) to model the interest charges for different scenarios.
Arrangement Fee
The arrangement fee (sometimes called a facility fee or product fee) is charged by the lender for setting up the commercial mortgage. This is one of the most significant commercial mortgage fees after the interest rate.
**Typical range:** 1-2% of the loan amount, calculated as a percentage of the total borrowing.
**Example:** On a £500,000 commercial mortgage, a 1.5% arrangement fee is £7,500.
Some lenders allow you to add the arrangement fee to the loan (capitalise it), which means you do not pay it upfront but it increases your total borrowing and the interest you pay over the mortgage term. Others require it to be paid on completion from your own funds.
High street banks may offer reduced or waived arrangement fees for strong applications, particularly on larger facilities. Specialist lenders typically charge the full fee. The arrangement fee is a key cost to factor in when comparing the best deal across multiple lenders.
Valuation Fees
Before approving a commercial mortgage, the lender instructs an independent RICS-qualified surveyor to value the property. The valuation confirms the market value, assesses the property condition, and identifies any issues that could affect the lender's security.
**Typical range:** Valuation fees of £1,500-£5,000+ depending on property type and value.
Valuation fees for commercial property are significantly higher than residential valuations because commercial valuations require specialist knowledge, income analysis, and often more extensive inspection.
Factors affecting valuation cost:
- Property value (higher values = higher fees)
- Property type (specialist properties like care homes cost more to value)
- Number of units or tenancies (multi-let buildings require more analysis)
- Location (travel costs for the surveyor)
Valuation fees may be payable upfront before the lender issues a formal offer, meaning you bear this cost even if the application is ultimately declined. Some lenders offer a refund policy if the case does not proceed.
Legal Fees
Commercial mortgage transactions require legal work involved from solicitors acting for both you and the lender. A solicitor handles conveyancing, title checks, searches, and the preparation of legal documentation securing the mortgage against the property.
**Your solicitor's fees:** £2,000-£7,000+ **Lender's solicitor's fees:** £1,500-£5,000+ **Total combined legal fees:** £3,500-£12,000+
Legal fees vary based on the complexity of the transaction:
- Straightforward freehold purchase: lower end
- Leasehold property with multiple tenants: higher end
- Complex structures (SPV, multiple guarantors): higher end
- Properties with title issues or restrictive covenants: additional legal work involved and cost
Some lenders use a dual representation model where one firm acts for both the borrower and the lender, which can reduce costs. However, in complex transactions, separate representation is more common.
Broker Fees
If you use a specialist commercial mortgage broker, you may have to pay a broker fee for their services. Commercial mortgage brokers provide valuable expertise in matching you with the right lender and negotiating favourable terms, but their fees vary.
**Typical range:** 0.5-1% of the loan amount, or a fixed fee
Some brokers charge the borrower directly, others are paid by the lender (procuration fee), and some use a combination. At Commercial Mortgages Broker, we are transparent about our fee structure from the outset. [Contact us](/contact) to discuss your requirements.
The cost of using a broker is almost always outweighed by the savings they achieve through better rates, reduced commercial mortgage fees, and faster completion. A broker with access to the whole market — including specialist lenders and high street banks — can find deals you would not access directly from a single lender. Working with experienced commercial mortgage brokers ensures you get the best deal available, subject to status.
Early Repayment Charges (ERC)
Early repayment charges are a significant cost to be aware of if you may want to repay your loan or pay off your mortgage early — whether by refinancing, selling an asset, or making lump sum repayments.
**Typical range:** 1-5% of the outstanding loan balance
Early repayment charges (sometimes called break costs or redemption penalties) apply primarily to fixed rate commercial mortgages. If you are on a fixed rate and want to exit before the fixed period ends, you will typically pay an early repayment charge (ERC) calculated as a percentage of the outstanding balance.
**Example:** On a £400,000 fixed rate commercial mortgage with 3 years remaining on the fixed period, a 3% ERC would cost £12,000.
Some lenders use a declining scale (5% in year 1, 4% in year 2, 3% in year 3, etc.), while others use a flat rate. Variable rate and tracker mortgages typically do not carry early repayment charges, which is one of their key advantages. Understanding whether you may have to pay an early repayment charge is critical if you plan to remortgage or sell within the shorter mortgage fixed period.
Stamp Duty Land Tax
Stamp Duty Land Tax (SDLT) is a government tax payable on property purchases and is one of the largest upfront costs when you purchase a commercial property.
For commercial property purchases in England:
- Up to £150,000: 0%
- £150,001 to £250,000: 2%
- Over £250,000: 5%
For mixed residential and commercial (semi-commercial) properties, SDLT may be calculated on a different basis. The purchase price and property type both affect the SDLT calculation. Professional tax advice is essential for semi-commercial transactions to understand the full implications of commercial property taxation.
SDLT is not a commercial mortgage fee per se, but it is a significant cost of the purchase that must be factored into your total budget relative to the purchase price. It is payable within 14 days of completion.
Ongoing Costs During the Mortgage Term
Monthly Repayments
Your monthly repayments depend on whether you choose a repayment mortgage (capital repayment and interest) or interest-only:
- Capital repayment mortgage — Monthly payments include both interest and capital repayment, gradually reducing the loan balance over the mortgage term. This is the most common structure for owner-occupied commercial mortgages.
- Interest-only — Monthly payments cover only the interest charges, with the full loan balance repaid at the end of the term (typically through sale or refinance).
Interest-only results in lower monthly payments but requires a clear plan for repaying the capital. Commercial mortgages are usually structured as repayment or interest-only depending on the lender's requirements and borrower preference.
Insurance
Lenders require buildings insurance on the property as a condition of the mortgage. You may also need:
- Property owners' liability insurance
- Rent guarantee insurance
- Business interruption insurance (for owner-occupied)
Service Charges and Maintenance
For leasehold commercial property or properties with shared services, ongoing service charges and maintenance costs need to be factored into your budgeting alongside monthly payments.
How to Reduce Your Commercial Mortgage Costs
Several strategies can help business owners reduce the total costs of a new commercial mortgage:
**Increase your deposit** — A larger deposit means lower LTV, which typically results in a lower interest rate and possibly reduced arrangement fees. The purchase price relative to your borrowing directly impacts cost.
**Improve your business credit** — A strong personal and business credit history leads to better rates. Address any credit issues before applying to strengthen your financial health.
**Choose the right product** — Compare the total cost (including commercial mortgage fees, not just the interest rate) across multiple lenders. A lower interest rate with a higher arrangement fee may cost more overall. Different lenders offer different rates and terms and conditions, so comparison is essential.
**Negotiate fees** — Arrangement fees, broker fees, and sometimes even valuation fees may be negotiable, particularly for larger facilities or strong applications charged by the lender.
**Time your application** — Monitor the Bank of England base rate and market conditions. Rates tend to be more competitive when lenders are actively seeking new business finance.
**Use a specialist broker** — Commercial mortgage brokers can access exclusive rates, negotiate favourable terms, and ensure you do not pay more than necessary. At Commercial Mortgages Broker, we work with over 100 lenders — including high street banks, specialist lenders, and limited company mortgage providers — to find the most competitive deal for your circumstances. Whether you are looking to purchase a commercial property, remortgage an existing property, or repay your loan through refinancing, we ensure you get the right commercial mortgage with the best deal available.
Use our [commercial mortgage calculator](/calculators/commercial-mortgage) to model costs, or [contact us](/contact) for a personalised quote.
*Written by Matt Lenzie, Founder of Commercial Mortgages Broker. Ex-Lloyds Bank & Bank of Scotland.*