How is a commercial mortgage calculated? Two tests, and the lower one wins.
A commercial mortgage is sized twice and the lender takes the lower figure: a percentage of the property's value, usually 65% to 75%, and the loan that the property's income or the business's profit can service at a cover ratio of 1.25 to 1.45 times on a stressed rate. Pricing, from about 5.9% a year in 2026, then follows the asset, the tenant and the borrower. On a £1m tenanted unit with £80,000 rent, value allows £750,000 and cover allows about £700,000, so the loan is £700,000.
By Dominic Whitecross, Co-Founder, HyLend. Last reviewed October 2026.
Test one: loan to value
Value times the lender's maximum percentage. Investment property with a strong tenant: up to 75%. Owner occupied trading premises: 70% to 75%. Specialist assets such as care homes, hotels and pubs: 60% to 70%, often on a going concern valuation rather than bricks and mortar. The value used is the lender's valuer's figure, not the price, and on an investment purchase it is usually the lower of the two. How the valuation sets the loan →
Test two: debt service cover
The loan the income can carry. For an investment: annual rent divided by (cover ratio times the stressed annual interest rate). For an owner occupier: adjusted EBITDA divided by the same. Lenders stress the rate above the pay rate, typically 1% to 2% above it or a floor of 6% to 7.5%, and require cover of 1.25 to 1.45 times depending on the asset.
Worked example: rent £80,000, cover 1.35x, stress rate 7%. Maximum loan = 80,000 / (1.35 x 0.07) = £846,500 on interest only, or lower on capital and interest where the full payment is tested. On a 20 year repayment at 7% the payment is about 9.3% of the loan a year, so the cover test gives 80,000 / (1.35 x 0.093) = £637,000. That is why repayment versus interest only changes the loan size, not just the monthly cost.
The monthly payment
Interest only: loan times rate, divided by twelve. £700,000 at 6.4% is £3,733 a month. Capital and interest over 20 years at the same rate is about £5,180 a month; over 25 years about £4,680. Most commercial lenders offer interest only on investment property for part or all of the term and capital and interest on owner occupied premises. Fixed rates are usually 2 to 5 years with variable thereafter at a margin over base rate. Run your own figures on the calculator →
What sets the rate
| Factor | Effect on pricing |
|---|---|
| Asset | Prime industrial and tenanted offices lowest; leisure, care and land highest |
| Tenant and lease | Strong covenant, 5+ years unexpired: lower. Short lease or vacant: higher or declined |
| Loan to value | Each 5% of LTV above 60% adds roughly 0.1% to 0.25% |
| Borrower | Trading history, net worth, experience; limited company or SPV with personal guarantees |
| Loan size | Under £250k pays more; above £1m gets institutional pricing |
| Fixed or variable | Fixes price above variable by the swap curve; margins over base from about 2% |
Fees that sit inside the calculation
Arrangement fee 1% to 2% of the loan, often added to the loan and so counted in LTV; valuation fee on a commercial scale (£1,500 to £5,000 and up); lender's legal fees; and a broker fee. Early repayment charges on fixed rates, typically 3% to 1% stepping down. The cheapest rate with a 2% fee is often dearer than a slightly higher rate with 1% on a five year hold; we compare the total cost over the period you expect to hold, not the headline.
How we place it
We run both tests for every lender whose appetite matches the asset, because the binding cap differs by lender: one caps you on value, another on cover, a third applies a lower stress rate and lends more. Whole of market means finding the lender whose arithmetic fits your building.
Send the basics
Asset, amount, timeline and exit. Lender backed indicative terms within 24 hours, tested across the whole market rather than a single panel.
Send the basics → or call 07310 008347, or WhatsApp +44 7741 434395.
Commercial mortgage calculation: FAQs
How much can I borrow on a commercial mortgage?
The lower of 65% to 75% of the property's value and the loan the rent or profit can service at 1.25 to 1.45 times cover on a stressed rate. Run both; the smaller figure is your loan.
What is debt service cover ratio?
Income available for debt divided by the debt payment. A lender requiring 1.35x cover wants rent or profit of £1.35 for every £1 of interest (or full payment) at its stressed rate.
Are commercial mortgage payments interest only?
Often, on investment property, for part or all of the term. Owner occupied premises are usually capital and interest. Interest only supports a larger loan under the cover test.
What deposit do I need?
25% to 40% of the purchase price depending on the asset and the valuation basis. See the deposit guide for the table by property type.
How is a commercial mortgage rate set?
By asset type, tenant and lease, loan to value, borrower strength and loan size, on top of the funding cost. From about 5.9% a year at low leverage on prime assets in 2026; specialist and higher leverage cases price above 8%.