How to Remortgage a Commercial Property for Better Rates

Remortgaging a commercial property works differently from remortgaging a residential home. The lending criteria are stricter, the interest rates are typically higher, and the application process requires considerably more documentation. However, for business owners and investors, remortgaging commercial property can unlock significant savings, release capital for growth, or restructure existing debt on better terms.

At Option Finance, we work with a wide network of commercial lenders and understand the nuances of this specialist market. This guide covers everything you need to know about remortgaging commercial property in the UK.

What counts as a commercial property?

Before diving into the remortgaging process, it is important to understand what lenders classify as commercial property. Commercial property includes any premises used primarily for business purposes, such as:

• Retail units — shops, restaurants, cafes, and takeaways
• Office space — from single offices to entire buildings
• Industrial units — warehouses, factories, and workshops
• Mixed-use properties — buildings with both commercial and residential elements, such as a shop with a flat above
• Land — commercial land with or without planning permission
• Leisure properties — pubs, hotels, guest houses, and care homes
• Healthcare premises — dental surgeries, GP practices, and veterinary clinics

Mixed-use properties occupy a middle ground between residential and commercial lending. Some lenders treat them as commercial, while others may offer semi-commercial mortgage products with slightly better terms. The classification depends on the proportion of commercial to residential use.

If your property is purely residential but used as a rental investment, it would typically fall under buy-to-let lending rather than commercial mortgage lending.

Why remortgage a commercial property?

There are several compelling reasons to remortgage a commercial property:

Reducing your interest rate — if you took out your commercial mortgage when rates were higher, or if your initial deal period has ended and you have moved onto the lender’s variable rate, remortgaging could significantly reduce your monthly payments.

Releasing equity — if your property has increased in value, remortgaging allows you to release some of that equity as cash. This can be used to invest in your business, purchase additional property, carry out refurbishments, or consolidate other business debts.

Changing your mortgage term — you may want to extend your term to reduce monthly payments, or shorten it to pay off the mortgage sooner. Our repayment calculator can help you compare different term lengths.

Switching from variable to fixed — if you are currently on a variable rate and want the certainty of knowing exactly what your payments will be, remortgaging to a fixed rate provides that stability.

Restructuring debt — if your business has accumulated various debts (overdrafts, credit lines, unsecured loans), consolidating them into a single commercial mortgage can simplify your finances and reduce your overall interest costs. This approach mirrors the benefits discussed in our guide to remortgaging for debt consolidation.

How commercial remortgaging differs from residential

There are several key differences between remortgaging a commercial property and remortgaging your home:

Interest rates are higher. Commercial mortgage rates typically range from 2-5% above the Bank of England base rate, compared to 0.5-2% above base for residential mortgages. The exact rate depends on the type of property, the strength of the business, and the loan-to-value ratio.

Loan-to-value ratios are lower. Most commercial lenders cap LTV at 70-75%, whereas residential mortgages can go up to 90-95%. This means you need more equity in the property to remortgage.

Terms are shorter. Commercial mortgage terms typically range from 3 to 25 years, compared to 25-40 years for residential mortgages. Some lenders offer interest-only terms, which can be useful for cash flow management.

Assessment is more complex. Lenders assess both the business’s ability to service the debt and the property’s value. They will want to see business accounts, trading history, and cash flow projections, in addition to the standard property valuation.

Fees are higher. Arrangement fees, valuation fees, and legal costs tend to be higher for commercial mortgages. Arrangement fees of 1-2% of the loan amount are common.

Eligibility and criteria

To remortgage a commercial property, you will typically need to meet the following criteria:

• Sufficient equity — most lenders require at least 25-30% equity in the property (i.e., a maximum LTV of 70-75%).
• Strong trading history — lenders usually want to see at least 2-3 years of trading accounts showing consistent profitability.
• Adequate debt service coverage — the business’s net income should comfortably cover the mortgage payments, typically by a ratio of at least 1.25:1 to 1.5:1.
• Acceptable credit history — while some specialist lenders cater to borrowers with adverse credit, commercial lenders are generally less flexible than residential lenders in this regard.
• Property in acceptable condition — the property must be in good repair and suitable for its current or intended use.
• Appropriate lease terms — if the property is leased to tenants, lenders will want to see lease terms that provide adequate income security. Leases with fewer than 3-5 years remaining can be problematic.

If you are self-employed and your business occupies the property, lenders will assess both your personal finances and the business’s financial health.

Documentation you will need

Commercial remortgage applications require extensive documentation. Having everything prepared in advance speeds up the process significantly. You will typically need:

Business documents:

• 2-3 years of audited or certified accounts
• Management accounts for the current financial year
• Business bank statements for the last 6-12 months
• Business plan or trading forecast (for newer businesses)
• Details of any existing business debts

Property documents:

• Current mortgage statement showing balance, rate, and any ERCs
• Latest commercial valuation (if available)
• Lease agreements (if the property is let to tenants)
• Details of any planning permissions or building regulations approvals for recent works
• Asbestos survey (required for most commercial properties built before 2000)
• Energy Performance Certificate (EPC)

Personal documents:

• Personal identification (passport or driving licence)
• Proof of address
• Personal bank statements for the last 3-6 months
• Personal tax returns (SA302s) for the last 2-3 years
• Details of personal assets and liabilities

The level of documentation required can seem daunting, but our team at Option Finance is experienced in preparing commercial remortgage applications and can guide you through exactly what is needed.

The remortgage process for commercial property

The commercial remortgage process typically follows these steps:

1. Initial assessment (week 1-2) We review your current mortgage, business finances, and objectives to determine the best approach and identify suitable lenders.

2. Property valuation (week 2-4) A commercial valuation is arranged by the new lender. Commercial valuations are more detailed than residential ones and are conducted by specialist commercial surveyors. They cost more and take longer — typically £1,000-£5,000 depending on the property type and value.

3. Application submission (week 3-5) We prepare and submit a detailed application pack to the chosen lender, including all supporting documentation and a covering letter explaining the business and the remortgage rationale.

4. Underwriting (week 5-10) The lender’s commercial underwriting team reviews the application. This process is more thorough than residential underwriting and can take several weeks. They may request additional information or ask questions about the business.

5. Mortgage offer (week 8-12) Once underwriting is complete, the lender issues a formal mortgage offer detailing the terms, conditions, and any special requirements.

6. Legal work (week 10-16) Solicitors act for both you and the lender to handle the legal transfer. Commercial conveyancing is more complex than residential and involves additional checks on titles, leases, environmental issues, and planning compliance.

7. Completion (week 14-20) The new mortgage completes, your existing lender is repaid, and the new mortgage starts. The total process typically takes 3-5 months from start to finish — considerably longer than a residential remortgage.

Costs involved in commercial remortgaging

The costs of remortgaging a commercial property are generally higher than for residential property:

• Arrangement fee: typically 1-2% of the loan amount (e.g., £2,000-£4,000 on a £200,000 loan)
• Valuation fee: £1,000-£5,000 depending on property type and value
• Legal fees: £1,500-£5,000 for commercial conveyancing
• Broker fee: varies by broker and complexity
• Exit fee from current lender: typically £100-£300
• Early repayment charge: check your existing mortgage terms carefully

These costs need to be weighed against the savings from the new deal. Our mortgage calculator can help you model different scenarios, though bear in mind that commercial rates and terms differ from the residential products most calculators are designed for.

Types of commercial remortgage products

Commercial mortgage products come in several forms:

Fixed rate — your interest rate is fixed for a set period (usually 2-5 years), giving you certainty over your payments. This is ideal for businesses that need to budget precisely.

Variable rate — your rate moves with the Bank of England base rate or the lender’s own base rate. Payments can go up or down, but you benefit if rates fall.

Tracker — the rate is set at a fixed margin above the Bank of England base rate. This provides transparency, as you know exactly how your rate is calculated.

Interest-only — you pay only the interest each month, with the capital repaid at the end of the term (usually through sale of the property or refinancing). This maximises cash flow but does not reduce the debt.

Part-and-part — a combination of repayment and interest-only, allowing you to repay some of the capital while keeping monthly payments manageable.

The right product depends on your business circumstances, cash flow needs, and risk appetite. Use our interest-only vs repayment calculator to compare how different structures affect your cash flow. At Option Finance, we discuss all the options and recommend the structure that best fits your situation.

Tips for a successful commercial remortgage

1. Start early — allow 4-6 months before your current deal expires. The process takes longer than residential remortgaging.
2. Keep your accounts up to date — lenders need recent, well-prepared accounts. Speak to your accountant early about having them ready.
3. Maintain your property — a well-maintained property values better and reassures lenders about the security.
4. Manage your credit carefully — avoid taking on new debt or missing payments in the months leading up to your application. Check your credit position with our affordability calculator.
5. Consider your tenants — if the property is let, strong tenant covenants and long lease terms make your application more attractive to lenders.
6. Use a specialist broker — commercial mortgage lending is a specialist area. A broker with commercial experience can access lenders and deals that are not available directly.

If you own residential investment property as well, you may want to review your buy-to-let mortgage at the same time to ensure your entire property portfolio is on the best possible terms.

The role of a commercial mortgage broker

Commercial mortgage lending is less standardised than residential lending. Each lender has different criteria, different appetites for different property types, and different pricing structures. Navigating this market without specialist help is time-consuming and risks approaching the wrong lenders.

A specialist broker like Option Finance adds value by:

• Identifying the most suitable lenders for your specific property type and circumstances
• Negotiating terms on your behalf
• Preparing a comprehensive application that addresses likely underwriting questions upfront
• Managing the process from start to finish, liaising with valuers, solicitors, and underwriters
• Providing ongoing reviews to ensure you continue to be on the best deal

We are authorised and regulated by the FCA, and all our advice is tailored to your individual circumstances. Whether you are remortgaging a single shop unit or a portfolio of commercial properties, we have the expertise and lender relationships to deliver the best outcome. For comprehensive information on commercial lending, see our ultimate UK commercial mortgage guide.

Get started with your commercial remortgage

Remortgaging a commercial property can save your business significant money and release capital for growth. While the process is more complex than residential remortgaging, with the right preparation and specialist advice, it is straightforward and well worth the effort.

Contact the Option Finance team today to discuss your commercial remortgage options. We will review your current deal, assess your property and business finances, and search the market for the best available terms. Our initial consultation is free and carries no obligation — we are here to help you make the right decision for your business.