Commercial mortgage rates explained
The short version
- A commercial mortgage rate is a lender margin added to a reference rate, such as the Bank of England base rate or a swap rate.
- The margin reflects your risk: a stronger case, a lower loan to value and a reliable income all earn a finer margin.
- Rates can be fixed for a period or left to vary with the reference rate. Each suits a different appetite for certainty.
- We do not quote live rates, because the rate that applies to you depends on your numbers on the day. We explain the mechanics so you can read any quote.
Buyers often ask us for the current commercial mortgage rate, expecting a single advertised figure. There is not one. A commercial mortgage rate is assembled from parts, and the part that varies most is the lender's view of your risk. This article explains how the pricing works, the difference between fixed and variable, and what moves a rate up or down, so you can read any quote you are given.
It sits under our hub on commercial mortgages for healthcare premises. We do not quote live rates here, because yours depends on your case.
How a commercial mortgage rate is built
A commercial mortgage rate has two parts: a reference rate that the lender does not control, and a margin that it does. Add them together and you have the rate you pay.
The reference rate moves with the wider economy and is the same for everyone. The margin is personal to your case, which is why two healthcare buyers can be quoted very different rates on the same day.
Nobody pays the reference rate. You pay the reference rate plus a margin, and the margin is the bit you can influence.
What moves the margin
The margin is where the strength of your case shows up. Lower risk earns a finer margin; higher risk costs more.
| Factor | Finer margin | Wider margin |
|---|---|---|
| Loan to value | Lower, for example 60 per cent | Higher, for example 80 per cent |
| Income | Contracted, for example NHS notional rent | New or variable private income |
| Trading history | Several years of clean accounts | Limited track record |
| Property | Standard, easily resold | Specialist, harder to sell |
| Debt service cover | Comfortably above 1.25 | Close to 1.0 |
This is why packaging earns its keep. Presenting a lower loan to value, a contracted income and a strong DSCR can move the margin in your favour. Test the structure with our loan to value and DSCR calculators.
Fixed versus variable
Once the margin is set, you choose how the reference-rate part behaves. A fixed rate is locked for a period, often two to five years, so your payments do not change even if the base rate moves. A variable rate tracks the reference rate, so your payments fall when it falls and rise when it rises.
Fixed
Certainty of payment for a set period, useful when budgeting around contracted income. You may pay a little more for that certainty, and early repayment charges can apply.
Variable
Payments follow the reference rate. Cheaper if rates fall, dearer if they rise. Suits a business comfortable carrying that risk.
Neither is right or wrong; it depends on how much certainty your business needs. A practice repaying out of steady NHS income often values the predictability of a fix.
What a rate costs you in payments
A rate only means something once you see it in pounds. The same rate costs more on a larger loan, and the term, how long the loan runs, spreads the capital over more or fewer years, changing the monthly payment.
Why we will not quote you a live rate
We deliberately do not publish live commercial mortgage rates. Any headline figure would be misleading, because your rate depends on the margin a lender sets for your specific case, which we only know once we have your numbers and a lender's response.
What we do instead is explain the mechanics, then go to the market and bring back real quotes you can compare on a like-for-like basis. Reading those quotes is easier once you understand the margin-over-reference structure above. See also how difficult it is to get a commercial mortgage and how much deposit you need.
We are an arranger and introducer, not a lender. Most commercial mortgages are unregulated, but where a loan is secured on your home, or otherwise inside the FCA perimeter, that part is regulated and we refer it to an authorised firm. More options at our healthcare finance hub.