Commercial Remortgage Guide: When & How to Refinance Your Commercial Property
Remortgaging a commercial property means replacing your existing mortgage with a new deal, either with your current lender or a different one, to secure a lower rate, release equity, or improve terms. A well-timed remortgage can save thousands annually, while staying on an uncompetitive rate costs borrowers significant money. This guide explains when and how to refinance.
What Is a Commercial Remortgage?
A commercial remortgage is the process of replacing your existing commercial mortgage with a new one, either with the same lender (a product transfer) or by switching to a different lender entirely. The underlying property remains the same, but the terms of the finance change.
The most common reasons for remortgaging include:
- Securing a lower interest rate when your current deal expires
- Releasing equity that has built up in the property
- Consolidating multiple property loans into a single facility
- Switching from a variable rate to a fixed rate (or vice versa)
- Moving to a lender with more suitable terms or greater flexibility
- Changing the loan structure, such as moving from repayment to interest-only
A commercial remortgage is fundamentally different from a [residential remortgage](/knowledge-hub/commercial-vs-residential-mortgages) in several important ways: the process is more complex, takes longer, involves higher costs, and the range of available products is less standardised.
When Should You Consider Remortgaging?
Timing is critical with commercial remortgages. Here are the key trigger points.
Your Fixed Rate or Deal Period Is Expiring
This is the most common and most important trigger. When your fixed rate, discounted rate, or introductory deal period ends, you will typically revert to your lender's standard variable rate (SVR), which is almost always significantly higher. I have seen borrowers paying 2% to 3% more than necessary simply because they did not act before their deal expired.
**My advice:** Start the remortgage process at least 4 to 6 months before your current deal expires. This gives you enough time to explore the market, obtain a valuation, and complete legal work without being rushed onto the SVR.
Your Property Has Increased in Value
If your commercial property has appreciated since you took out the original mortgage, your effective LTV ratio has decreased. A lower LTV opens the door to more competitive rates and potentially releases equity for other purposes.
For example, if you borrowed £400,000 against a property valued at £600,000 (67% LTV) and the property is now worth £750,000, your effective LTV has dropped to 53%. This could unlock significantly better rates or allow you to release up to £125,000 in additional equity while maintaining a comfortable 70% LTV.
Interest Rates Have Fallen
If the base rate or market rates have fallen materially since you arranged your current mortgage, there may be scope to secure a lower rate, even after accounting for any early repayment charges. Always run the numbers carefully: the saving from a lower rate needs to exceed the total cost of remortgaging (including any ERCs, arrangement fees, legal costs, and valuation fees).
You Need to Release Equity
Commercial property owners frequently remortgage to release equity for:
- Funding the purchase of additional investment properties
- Investing in business expansion or working capital
- Carrying out refurbishment or improvement works
- Paying down other, more expensive debts
- Providing capital for personal or family needs
Equity release through remortgaging is often more tax-efficient than selling the property, as it avoids triggering capital gains tax on the disposal.
Your Circumstances Have Changed
Changes in your business, portfolio, or personal circumstances may mean your current lender is no longer the best fit. This might include:
- Growth in your portfolio requiring a lender with higher exposure limits
- A change in property use requiring specialist lending criteria
- Restructuring your ownership from personal name to SPV
- A need for more flexible terms such as capital repayment holidays
Your Lender Has Changed Terms
Lenders periodically adjust their criteria, pricing, or service levels. If your current lender has become less competitive or less willing to support your plans, it may be time to look elsewhere.
The Commercial Remortgage Process: Step by Step
The remortgage process follows a similar path to the original mortgage application, though with some important differences.
Step 1: Review Your Current Position
Before approaching the market, gather the following information:
- Current mortgage balance, rate, and remaining term
- Early repayment charge schedule and any exit fees
- Current property valuation estimate
- Recent rental income or business accounts
- Details of any outstanding charges or restrictions on the property
This baseline allows you to make a meaningful comparison between your existing deal and any new offers.
Step 2: Engage a Specialist Broker
The commercial mortgage market has hundreds of lenders, each with different criteria and pricing. A specialist broker can:
- Assess your current deal against the whole market
- Identify lenders with the best rates and terms for your specific property
- Structure the application to present your case most favourably
- Manage the process and coordinate between all parties
At Commercial Mortgages Broker, we regularly save clients significant sums by identifying lenders our clients would never have found on their own.
Step 3: Obtain Indicative Terms
Your broker will approach selected lenders with a summary of your deal. Indicative terms (also called Decision in Principle or Agreement in Principle) set out the likely rate, LTV, term, and conditions. Having multiple indicative offers allows you to compare and negotiate.
Step 4: Formal Application
Once you select your preferred lender, a full application is submitted with comprehensive documentation:
- Two to three years of business accounts or personal tax returns
- Current rental schedule with copies of leases
- Personal asset and liability statement
- Details of the existing mortgage and any charges
- Evidence of the source of any additional equity
Step 5: Valuation
The new lender will instruct an independent RICS surveyor to value the property. The valuation is critical as it determines the LTV ratio and therefore the rate and maximum loan available. Valuation fees typically range from £1,500 to £5,000 depending on property size and complexity.
Step 6: Legal Work
Solicitors act for both you and the new lender to:
- Review the title and any charges on the property
- Prepare the new mortgage deed
- Arrange redemption of the existing mortgage
- Handle the transfer of funds
Legal fees for a remortgage typically range from £2,500 to £7,500 for both sides combined.
Step 7: Completion
On completion day, the new lender releases funds to repay the existing mortgage and any equity release is transferred to you. The old lender's charge is removed and replaced with the new lender's charge.
The entire process typically takes 8 to 16 weeks, though it can be quicker for straightforward cases or longer for complex ones.
Costs of Remortgaging a Commercial Property
Understanding the full cost is essential to determine whether remortgaging makes financial sense.
Early Repayment Charges (ERCs)
If you are still within a fixed or deal period, your existing lender will likely charge an ERC. These are typically calculated as a percentage of the outstanding balance and reduce over time. Common ERC structures include:
- 3% in year 1, 2% in year 2, 1% in year 3
- A fixed percentage throughout the deal period
- A yield maintenance calculation based on swap rates
ERCs can be substantial — on a £500,000 mortgage, a 2% ERC equates to £10,000. Always factor this into your calculations.
Arrangement Fees
The new lender will charge an arrangement or facility fee, typically 1% to 2% of the loan amount. On a £500,000 mortgage, this means £5,000 to £10,000. Some lenders allow this to be added to the loan.
Valuation Fees
Expect to pay £1,500 to £5,000 for a RICS commercial property valuation. More complex or larger properties will be at the higher end.
Legal Fees
Combined solicitor costs for borrower and lender typically range from £2,500 to £7,500. Some lenders contribute to or cover their own legal costs for remortgage cases.
Broker Fees
If using a broker, fees are typically 0.5% to 1% of the loan amount. The savings a good broker achieves through better rates and terms almost always exceed their fee.
Total Remortgage Cost Example
For a £500,000 commercial remortgage:
| Cost Item | Typical Range |
|---|---|
| Early repayment charge | £0 - £15,000 |
| Arrangement fee | £5,000 - £10,000 |
| Valuation fee | £2,000 - £4,000 |
| Legal fees | £3,000 - £6,000 |
| Broker fee | £2,500 - £5,000 |
| Total | £12,500 - £40,000 |
These costs need to be weighed against the savings from the new rate and any equity released. A 1% rate reduction on a £500,000 mortgage saves £5,000 per year, so even with significant upfront costs, the remortgage can pay for itself within 2 to 3 years.
Remortgage vs Product Transfer vs Further Advance
These three options serve different purposes and it is important to understand the distinctions.
Product Transfer
A product transfer means staying with your existing lender but moving to a new rate or deal. The advantage is simplicity — no new valuation or legal work is typically required. The disadvantage is that you are limited to one lender's products, which may not be the most competitive.
Product transfers are best when your existing lender's new deal is genuinely competitive and you do not need to change anything else about the mortgage.
Remortgage to a New Lender
A full remortgage involves switching to a different lender. This gives you access to the whole market and is the best way to ensure you are getting the most competitive terms. The trade-off is higher costs and a longer process.
Remortgaging is best when you want to access better rates, release equity, change the loan structure, or your current lender is no longer suitable.
Further Advance
A further advance means borrowing additional funds from your existing lender, secured against the same property. This can be useful for equity release but typically comes at the lender's standard (often higher) rates and does not address the pricing of your existing loan.
A further advance is best when you need additional funds quickly and your existing lender offers acceptable terms, but it should not be used as a substitute for a full remortgage review.
Case Study: Rate Saving on Office Remortgage
A client came to us with a £650,000 commercial mortgage on a multi-let office building in Manchester. The original mortgage was arranged 5 years previously at a fixed rate of 5.50% with a high street bank. The fix had expired and the client had reverted to the SVR of 8.25%.
The property had appreciated from the original purchase price of £900,000 to a current valuation of £1,100,000, reducing the effective LTV from 72% to 59%.
We sourced a new 5-year fixed rate of 6.25% with a challenger bank, with an arrangement fee of 1.25%. The total cost of remortgaging was approximately £18,000 (arrangement fee, valuation, legal costs, and broker fee). The annual interest saving from 8.25% to 6.25% was £13,000 per year, meaning the remortgage paid for itself within 17 months.
The client also released £70,000 in equity to fund improvements to the building's common areas, which in turn supported higher rents at the next lease renewal.
Common Pitfalls to Avoid
From years of experience, here are the most common mistakes borrowers make when remortgaging commercial property.
Leaving It Too Late
The most expensive mistake is not acting until after your deal expires and you are paying the SVR. Start the process at least 4 to 6 months before expiry. Some lenders allow you to lock in a new rate up to 6 months in advance.
Focusing Only on the Rate
The headline rate is important, but it is not the whole picture. Consider arrangement fees, flexibility, early repayment terms, and the lender's service quality. A slightly higher rate with a more flexible lender may be better overall than the cheapest rate with rigid terms.
Not Getting an Independent Valuation View
The new lender's valuation is critical to the remortgage. If you are counting on a certain LTV based on your own valuation estimate and the surveyor comes in lower, it can derail the deal or result in a higher rate. Get a realistic view of likely valuation before committing to a remortgage.
Ignoring Exit Costs
Always calculate the total cost of leaving your existing lender, including ERCs, exit administration fees, and deferred arrangement fees that may crystallise on early repayment.
Not Shopping the Market
Approaching only one or two lenders means you may miss significantly better deals elsewhere. The commercial mortgage market is large and fragmented, and the best lender for your deal may not be the most obvious choice.
Is Now a Good Time to Remortgage?
With the Bank of England base rate at 4.50% and expected to continue falling gradually through 2026, many commercial property owners are reviewing their options. If you are on an SVR or a fixed rate that is due to expire, now is an excellent time to explore the market. Even if you are mid-term, it is worth running the numbers to see whether the savings from a lower rate justify the costs of breaking your current deal.
For a free, no-obligation review of your current commercial mortgage, [contact our team](/contact). We will assess your existing deal against the whole market and advise whether remortgaging makes sense for your specific situation.
Frequently Asked Questions
Below we answer the most common questions about remortgaging commercial property.
*Written by Matt Lenzie, Founder of Commercial Mortgages Broker. Ex-Lloyds Bank & Bank of Scotland.*