A commercial mortgage is a loan secured against a property that is used for business purposes. If you are buying an office, a retail unit, a workshop, a warehouse, or a mixed-use building in or around Cambridge, the mortgage process is different from buying a home. Lenders assess the property, the business, and the borrower differently, and the products available work on different terms.
This guide explains how commercial mortgages work, what lenders look for, and what to consider if you are a business owner or investor looking at commercial property in Cambridge.
How Commercial Mortgages Differ from Residential
Commercial mortgages share the same basic principle as residential mortgages — a loan secured against property — but the terms, criteria, and process are different in several important ways:
Deposit. Commercial lenders often require a deposit in the region of 25–40% of the property value, depending on the property type, lease strength, and borrower profile. This commonly results in maximum loan-to-value ratios in the region of 60–75%, which is often lower than residential lending.
Interest rates. Commercial mortgage rates are generally higher than residential rates. Rates vary depending on the lender, the property type, the LTV, and the strength of the business or borrower.
Term. Commercial mortgage terms are often shorter than residential ones. Terms of 15 to 25 years are common, though some lenders offer longer. Some commercial mortgages are structured with a shorter term and a balloon payment at the end.
Assessment. Lenders assess the business or borrower’s ability to service the debt, the property’s value and condition, and the strength of any rental income if the property is let. This is more involved than a standard residential affordability check.
Regulation. Most commercial mortgages are not regulated by the Financial Conduct Authority. This means the protections that apply to residential mortgage borrowers do not apply in the same way. It is important to understand this before you proceed.
What Lenders Look At
The Business
For owner-occupied commercial property, the lender will assess the financial health of the business that will occupy the premises. This includes reviewing trading accounts, cash flow, profitability, and the business’s ability to service the mortgage payments alongside its other commitments. Many lenders require at least two years of filed accounts, though some will consider newer businesses with strong financials and a clear plan.
The Property
The property itself is central to the lender’s assessment. Lenders consider the type of property (office, retail, industrial, mixed-use), its condition, its location, its current and potential rental value, and how easily it could be sold or re-let if the borrower defaulted. Standard commercial properties in established locations are generally easier to finance than unusual or specialist premises.
The Borrower
Lenders assess the borrower’s personal financial position, credit history, and experience. For limited company borrowers, the lender may also require personal guarantees from the directors. The strength of the borrower’s overall financial position can affect the terms offered.
Rental Income (Investment Properties)
If you are buying a commercial property as an investment — to let to a tenant — the lender will assess the rental income in a similar way to a buy-to-let mortgage. The rent needs to cover the mortgage payments with a margin, and the lender will consider the quality of the tenant, the length and terms of the lease, and the property’s void risk.
Owner-Occupied vs Investment Commercial Mortgages
Owner-occupied. You buy the property for your own business to use. The lender assesses affordability based on the business’s trading performance and ability to service the debt. This is the most common route for small and medium-sized businesses buying their own premises.
Commercial investment. You buy the property to let to a third-party tenant. The lender focuses on the rental income, the tenant covenant, and the lease terms. Deposit requirements may differ from owner-occupied purchases.
Some borrowers combine both — occupying part of the property and letting the rest. This is common with mixed-use buildings and can affect how the lender assesses the application.
Semi-Commercial and Mixed-Use Properties
A semi-commercial or mixed-use property has both residential and commercial elements — for example, a flat above a shop, or an office building with a residential unit attached. These are common in Cambridge’s city centre, where many buildings on streets such as Mill Road, Regent Street, and Hills Road combine retail or office space at ground level with residential accommodation above.
Lending on mixed-use properties sits between residential and commercial criteria. Some lenders treat them as commercial, some as residential with additional conditions, and some have specific mixed-use products. The split between commercial and residential floor space often determines which category the property falls into. A broker can identify which lenders are most suitable for the specific property you are considering.
Commercial Property and Mortgages in Cambridge
Cambridge’s commercial property market is shaped by the city’s economy. Demand is often supported by the technology and life sciences sectors, alongside the wider university and business ecosystem, particularly around the Cambridge Science Park, St John’s Innovation Centre, and the Cambridge Biomedical Campus. The city centre has a mix of retail, hospitality, and office premises, many in period buildings with specific planning and conservation considerations.
For business owners looking to buy their premises — whether an office near the station, a unit on a business park, or a mixed-use building in the city centre — the commercial mortgage process can be more involved than a residential purchase but can offer long-term benefits including fixed occupancy costs and asset ownership.
What Does a Commercial Mortgage Cost?
The main cost components of a commercial mortgage include:
Interest rate. Rates vary by lender, LTV, property type, and borrower strength. Commercial rates are generally higher than residential rates.
Arrangement fee. Many lenders charge an arrangement or facility fee, often calculated as a percentage of the loan amount.
Valuation fee. The lender will require a commercial valuation, which is more detailed and more expensive than a residential valuation.
Legal fees. Both your solicitor and the lender’s solicitor will charge fees. Commercial conveyancing is more complex than residential.
Broker fee. If applicable. At Fitch & Fitch, we will always confirm any fee before you commit to proceeding.
A mortgage broker should present the total cost of the facility so you can compare options on a like-for-like basis.
Frequently Asked Questions
How much deposit do I need for a commercial mortgage?
Deposits of around 25–40% of the property value are common, giving a maximum LTV of 60–75%. The exact deposit depends on the lender, the property type, and the strength of the business or borrower. Some lenders may require more for higher-risk properties or borrowers.
Is it easy to get a mortgage on a commercial property?
It depends on the property, the business, and the borrower. Standard commercial properties in established locations with strong tenant demand are generally easier to finance. Unusual properties, new businesses, or borrowers with limited financial history may find the process more involved. A broker with commercial lending experience can assess your position and identify suitable lenders.
What is the current commercial mortgage rate?
Commercial mortgage rates vary depending on the lender, the LTV, the property type, and the borrower’s profile. Rates are generally higher than residential mortgage rates. A broker can provide current indicative rates based on your specific circumstances.
Can I get a commercial mortgage through a limited company?
Yes. Many commercial mortgages are taken through limited companies, including special purpose vehicles (SPVs). The lender will assess the company’s financials and may require personal guarantees from the directors. Some lenders also lend to partnerships, sole traders, and pension funds (SIPPs and SSASs).
What is a semi-commercial mortgage?
A semi-commercial or mixed-use mortgage is for a property that has both residential and commercial elements. The lending criteria depend on the split between commercial and residential floor space and the lender’s approach. These are common in Cambridge’s city centre.
Next Steps
If you are considering buying commercial property in Cambridge — whether for your own business or as an investment — the first step is to discuss your requirements with a broker who understands the commercial lending market. We can assess the property, review your business or investment case, and identify suitable lenders.
Visit our Cambridge page to book a consultation, or call 01223 655 579.