How to Refinance Your Commercial Mortgage in the UK: Rates & Tips (2025 Edition)

The landscape of commercial finance in the United Kingdom has shifted dramatically over the last twenty-four months. As we navigate late 2025, business owners and property investors face a unique set of challenges and opportunities. With the Bank of England holding the Base Rate at 4.0% as of November 2025, the volatility of previous years has begun to settle, yet borrowing costs remain historically elevated compared to the pre-2022 era.

Refinancing a commercial mortgage is no longer just a box-ticking exercise. It is a strategic financial maneuver. Whether you are looking to unlock equity for expansion, improve your cash flow by extending loan terms, or simply escape a punishing variable rate, understanding the nuances of the current market is essential.

This comprehensive guide is written for the astute property owner. We will dissect the current rate environment, explore high-value financing niches like bridging and semi-commercial loans, and provide a granular breakdown of the costs involved.

The Commercial Refinancing Landscape in November 2025

To make an informed decision, you must first understand the macroeconomic factors at play. The days of sub-3% commercial interest rates are behind us for the immediate future.

The Bank of England Base Rate Context

As of the Monetary Policy Committee (MPC) meeting on November 6, 2025, the Base Rate sits at 4.0%. This stability follows a period of gradual cuts from the 2023 highs. For commercial borrowers, this signals a “new normal.” Lenders have priced their products to reflect this stability, meaning the massive risk premiums we saw in 2023 and 2024 have started to compress.

However, a 4.0% Base Rate means that “all-in” commercial mortgage rates (Base Rate + Lender Margin) typically start from the mid-6% range for prime borrowers and scale upwards for specialized asset classes.

Fixed Rates vs. Variable Rates

One of the most critical choices you will face is the structure of your interest payments.

Fixed-Rate Commercial Mortgages In the current 2025 climate, fixed rates offer certainty. Many High Street banks are offering 3 to 5-year fixed terms that are competitively priced because the yield curve suggests rates may stabilize or fall slightly. Locking in a rate now protects your business from any sudden geopolitical shocks that could send inflation (and interest rates) soaring again.

Variable-Rate Mortgages These track the Bank of England Base Rate. With the current trend being a slow downward trajectory or stability, a variable rate might be attractive if you believe the MPC will cut rates to 3.5% or lower in 2026. However, this is a gamble. If inflation spikes, your monthly repayments will increase immediately.

Why Refinance Your Commercial Property Now?

Refinancing is expensive due to fees and administrative costs. Therefore, the “why” must be compelling. In 2025, we are seeing four primary drivers for commercial refinancing.

1. Unlocking Equity for Growth

Commercial property values in certain sectors (specifically industrial and logistics) have remained robust. If your property has appreciated, refinancing allows you to release that equity. This capital can be deployed to purchase additional stock, fund a business expansion, or acquire a competitor. It is a tax-efficient way to raise capital compared to unsecured business loans.

2. Debt Consolidation

Many businesses accumulated various short-term debts during the volatile economic periods of 2023 and 2024. Refinancing allows you to wrap these smaller, high-interest loans (such as asset finance or overdrafts) into a single, longer-term commercial mortgage. This can significantly reduce your monthly outgoing cash flow, even if the total interest paid over the long term is higher.

3. Meeting EPC and ESG Requirements

This is a massive factor in 2025. The UK government’s Minimum Energy Efficiency Standards (MEES) are tightening. Commercial landlords are under immense pressure to improve their Energy Performance Certificate (EPC) ratings. Refinancing is a popular method to raise the capital required for “green retrofitting,” such as installing solar panels, heat pumps, or improved insulation. Some lenders even offer “Green Mortgages” with discounted arrangement fees for this specific purpose.

4. Expiry of Initial Terms

If you took out a 5-year fixed mortgage in 2020, your term is ending. Reverting to the lender’s Standard Variable Rate (SVR) is rarely a good idea, as SVRs are typically punitive (often 2% to 4% above the Base Rate). Refinancing is necessary to avoid this payment shock.

Detailed Criteria: How Lenders Assess You in 2025

Commercial lending is not algorithm-driven like residential lending. It is manual and bespoke. A human credit officer will review your case. Here is what they look for.

Loan to Value (LTV) Ratios

LTV remains the primary risk metric.

• Owner-Occupied Trading Businesses: Lenders are generally willing to go up to 70% or 75% LTV. They view these as lower risk because the borrower’s livelihood depends on the premises.
• Commercial Investment (Buy-to-Let): LTVs are typically capped at 65% or 70%.
• Specialized Assets (Hotels, Care Homes): These often see lower LTV caps, around 60%, due to the volatility of the underlying business sectors.

Debt Service Coverage Ratio (DSCR)

This is the most technical but vital part of your application. Lenders want to know that the income generated by the property (or the business within it) covers the mortgage payments with a safety margin.

• The Formula: Net Operating Income / Total Debt Service.
• The Benchmark: In 2025, most lenders require a DSCR of 125% to 140% at a “stressed” interest rate. This means if your mortgage payment is £1,000, your income must be at least £1,250.

EBITDA vs. Rent

For owner-occupied applications, lenders look at your EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization). They need to see that the business profit is sufficient to service the debt. For investment properties, they look strictly at the lease agreement and the quality of the tenant (covenant strength). A Blue Chip tenant (like a government agency or major retailer) will secure you the best rates.

Specialized Refinancing Products

The “vanilla” commercial mortgage is not always the right fit. High-value niches often provide the flexibility complex businesses need.

Semi-Commercial Mortgages

Properties that are part residential and part commercial (e.g., a flat above a shop) are classified as semi-commercial. These are highly attractive to lenders in 2025 because the residential component reduces the risk of voids.

• CPC Insight: Lenders often offer higher LTVs (up to 75%) and slightly better rates for semi-commercial assets compared to pure commercial assets.
• Use Case: Refinancing a mixed-use portfolio to extract cash for further residential acquisitions.

Commercial Bridging Finance

Bridging loans are short-term, high-interest tools used to “bridge” a gap.

• Speed: A bridging loan can be arranged in days, whereas a standard commercial mortgage takes months.
• Refinance Strategy: If your property is currently in poor condition (preventing a standard mortgage), you use a bridging loan to buy and renovate it. Once the value is increased and the property is legally habitable, you “exit” the bridge by refinancing into a cheaper, long-term commercial mortgage.
• Cost: Expect monthly rates between 0.65% and 0.95%.

Adverse Credit Commercial Mortgages

Having a “perfect” credit history is rare for businesses that have survived the last few years. If you have CCJs (County Court Judgments), missed payments, or a CVA (Company Voluntary Arrangement), you are not excluded from the market.

Tier 2 and Tier 3 Lenders There is a thriving ecosystem of “Challenger Banks” and specialist lenders who cater specifically to adverse credit.

• The Trade-off: You will pay a higher rate (likely 2% to 4% above standard market rates) and be restricted to a lower LTV (usually 60% max).
• The Strategy: Use an adverse credit mortgage for 2 or 3 years. Repair your credit score during this time by making perfect payments. Then, refinance again to a High Street lender.

The Costs of Refinancing: A Granular Breakdown

Understanding the “Cost of Credit” is vital. It is not just about the interest rate.

1. Arrangement Fees

Lenders typically charge an arrangement fee of 1.0% to 2.0% of the loan amount. On a £1 million mortgage, this is £10,000 to £20,000. This is usually added to the loan balance, meaning you pay interest on the fee.

2. Valuation Fees

Commercial valuations are complex. A surveyor must visit the site, assess local comparable rents, and analyze the building’s condition.

• Simple Shop/Office: £800 to £1,500.
• Complex Trading Business (Hotel/Factory): £2,000 to £5,000+.

3. Legal Fees

You will need to pay for your own solicitor and, usually, the lender’s solicitor. Commercial conveyancing involves checking leases, planning permissions, and environmental searches.

• Budget: £3,000 to £6,000 total for a standard transaction.

4. Broker Fees

Using a specialist commercial broker is highly recommended (and often required by specialist lenders).

• Cost: Standard fees are around 1% of the loan amount. Some brokers may charge a flat engagement fee upfront.

5. Early Repayment Charges (ERCs)

If you are refinancing before your current deal has expired, check your redemption statement. ERCs can be as high as 5% of the outstanding balance in the early years of a fixed term.

High Street vs. Challenger Banks: Who Should You Choose?

The lending market is bifurcated.

High Street Banks (The Big Four)

• Pros: Lowest interest rates, established relationship managers.
• Cons: Extremely strict criteria. They prefer “vanilla” deals. Slow processing times (3 to 6 months).
• Best For: Strong trading businesses with perfect credit and low LTV requirements.

Challenger Banks and Specialist Lenders

• Pros: Flexible criteria. They look at the “story” behind the numbers. Faster decisions. Willing to lend on specialized assets (care homes, day nurseries).
• Cons: Higher interest rates. Higher fees.
• Best For: Complex ownership structures, foreign nationals, adverse credit, or high LTV requests.

A Step-by-Step Guide to the Application Process

To secure the best CPC-driving content (i.e., the most competitive offers), you must be prepared.

Step 1: Document Preparation (The “Pack”)

Before you approach a lender, gather:

• Last 3 years of certified trading accounts.
• Last 3 months of business bank statements.
• A current Asset & Liability statement for all directors.
• Details of the existing lease (if investment) or a business plan (if owner-occupied).
• EPC certificate.

Step 2: Broker Engagement

Engage a commercial finance broker. They have access to “Intermediary Only” lenders that you cannot approach directly. They will package your application to present your case in the best light.

Step 3: Heads of Terms (HoT)

If a lender likes your proposal, they will issue Heads of Terms. This is an “in principle” offer outlining the rate, LTV, and fees. Tip: This is the stage to negotiate.

Step 4: Valuation and Legals

Once you accept the HoT and pay the valuation fee, the lender instructs the surveyor. Simultaneously, solicitors begin their due diligence.

Step 5: Formal Offer and Drawdown

After the valuation comes back satisfactory and legal checks are clear, a Formal Offer is issued. You sign the deed, and funds are released to pay off your old lender.

Frequently Asked Questions (FAQ)

Can I refinance a commercial property with bad credit?

Yes, absolutely. While High Street banks may decline you, specialist lenders focus on the property value and the serviceability of the loan rather than just credit history. Expect to pay a risk premium on the rate.

What is the current commercial mortgage rate in the UK?

As of November 2025, with the Base Rate at 4.0%, typical commercial rates for prime borrowers range from 5.75% to 7.0%. Borrowers with adverse credit or specialized assets may see rates from 7.5% to 9.5%.

Can I get a 100% LTV commercial mortgage?

Generally, no. Commercial lending requires a deposit or equity. However, if you have additional security (such as another property with high equity), some lenders may allow you to cross-charge, effectively achieving 100% funding on the new purchase by leveraging the old one.

Is commercial mortgage interest tax-deductible?

For limited companies, interest payments on commercial mortgages are typically treated as a business expense and are tax-deductible. This is different from residential buy-to-let rules for individuals. Always consult a tax advisor.

How long does a commercial refinance take?

It is slower than residential. A fast case takes 8 to 10 weeks. A complex case involving lease restructuring can take 3 to 5 months.

Conclusion

Refinancing your commercial mortgage in late 2025 is a powerful tool for business stability and growth. The market has stabilized, offering a window of opportunity for those prepared to navigate the complexities of LTVs, DSCRs, and lender criteria.

Whether you are consolidating debt, funding a green retrofit, or simply seeking a better rate, the key is preparation. The gap between the best rates and the average rates is significant. By understanding the levers of the market—from the 4% Base Rate environment to the appetite of Challenger Banks—you can secure financing that propels your business forward.

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Sources:

• Bank of England Interest Rate History
• RICS Commercial Property Monitor
• UK Finance: Commercial Lending Trends