What is a commercial mortgage, and how does it work in hospitality?
A commercial mortgage is the loan that buys or refinances business premises. This guide explains what one is, how it differs from a residential mortgage, and why a hotel or pub is underwritten on its trade, not just its bricks and mortar.
A commercial mortgage is a loan secured against property used for business, repaid over an agreed term with interest, on either a capital repayment or interest-only basis. In hospitality it funds the purchase or refinance of a hotel, pub, restaurant, guest house or other trading premises, where the building and the business are the same asset. Unlike a residential mortgage, it is assessed mainly on the property's trading performance and the borrower's covenant rather than personal income, so the lender looks at occupancy, room rates, the accounts and the going-concern valuation. Deposits usually run from 25 to 40 percent, terms from 5 to 25 years, and pricing is set as a margin over a reference rate that varies by lender and trading history. We arrange these facilities as a broker; we do not lend.
At a glance
- What it isA loan secured on business property
- Used forBuying or refinancing hospitality premises
- Assessed onTrade, accounts and going-concern value
- Typical deposit25 to 40 percent of value
- Typical term5 to 25 years
- RegulationCommercial and unregulated in most cases
What a commercial mortgage is
A commercial mortgage is a loan used to buy, build or refinance property that is used for business, secured against that property as a first charge. The lender advances a proportion of the value, the borrower puts in the balance as a deposit, and the loan is repaid over a term with interest. It is the standard way a business owns rather than rents its premises, and for a trading hospitality asset it is usually the largest single piece of the funding.
The commercial finance we arrange, including a commercial mortgage on a trading hotel, pub or restaurant, is unregulated business lending. Hospitality Property Finance is not authorised by the Financial Conduct Authority, and where a facility would be regulated, for example a mortgage on a property that will also be the borrower's own home, we refer it to an FCA-authorised firm. Our core commercial mortgage service is at /services/commercial-mortgages/.
How a commercial mortgage differs from a residential one
A residential mortgage is assessed on the borrower's personal income against strict affordability rules and is regulated by the FCA. A commercial mortgage is assessed mainly on the property and the business it houses: the trading accounts, the projected income and the borrower's track record and covenant. The rate is not a headline advertised number but a margin over a reference rate, priced to the deal, and the deposit is larger. Interest-only structures are common on commercial lending where a residential borrower would usually repay capital.
| Feature | Residential mortgage | Commercial mortgage |
|---|---|---|
| Assessed on | Personal income and affordability | Trading performance and covenant |
| Typical deposit | 5 to 25 percent | 25 to 40 percent |
| Pricing | Advertised product rates | Margin over a reference rate, priced to the deal |
| Regulation | FCA regulated | Usually unregulated commercial lending |
| Structure | Mostly capital repayment | Repayment or interest-only |
Why hospitality property is underwritten on its trade
A hotel, pub or restaurant is not valued like an office or a warehouse. The building and the business are the same asset, so a specialist lender underwrites the going concern: what the property earns as a trading operation, measured through occupancy, average daily rate and RevPAR for a hotel, or covers, spend and margin for a food-led site. The valuation reflects the fair maintainable trade a competent operator could achieve, not simply the floor area, which is why the going-concern valuation at /guides/going-concern-valuation/ and fair maintainable trade at /guides/fair-maintainable-trade-explained/ sit at the centre of a hospitality mortgage.
This is why the lender pool is narrow. Only a group of specialist banks and lenders are comfortable reading a set of trading accounts and lending against a proportion of going-concern value, and matching a case to the right one is most of the work. The UK hotel market itself is deep: Savills put UK hotel investment at 5.0 billion pounds for full-year 2025, above the ten-year average, a sign of a market that specialist lenders actively support.
What the loan costs to run
The cost of a commercial mortgage is the interest, set as a margin over a reference rate, plus the fees that sit around it. Pricing on a trading hospitality asset is usually a little higher than on a simple let commercial investment, because the debt depends on the trade rather than a contracted tenant. The margin, the loan to value and the term all move with the strength of the accounts and the borrower's experience, so figures vary by lender and trading history and any range is indicative only.
- Interest: a margin over a reference rate, higher for a trading asset than a let investment
- Arrangement fee: commonly 1 to 2 percent of the loan, often added to the facility
- Valuation fee: larger for a trade-related valuation than a bricks-and-mortar one
- Legal costs: the borrower usually pays both sides on commercial lending
- Broker fee: charged for arranging and placing the facility
How pricing is built up, and how fixed and variable options compare, is set out at /guides/commercial-mortgage-rates-hospitality/.
How we arrange a hospitality commercial mortgage
We read the trading accounts, build the case the way a specialist credit team will read it, and place it with the lender whose appetite fits the asset and the borrower. We arrange the deposit structure, size the loan against the going-concern valuation and the cover the trade supports, and line up any supporting facilities such as a VAT loan at /services/vat-loans/ or asset finance for fixtures and equipment at /services/asset-finance/. We are an arranger, not a lender. Every enquiry is read and taken to market by Matt Lenzie personally.
What is a commercial mortgage, and how does it work in hospitality?: common questions
What is the difference between a commercial mortgage and a normal mortgage?
A normal, residential mortgage is assessed on your personal income under FCA affordability rules and is regulated. A commercial mortgage is assessed mainly on the property and the business it houses, needs a larger deposit of usually 25 to 40 percent, is priced as a margin over a reference rate rather than an advertised product rate, and is normally unregulated commercial lending.
How difficult is it to get a commercial mortgage?
It is more involved than a residential mortgage but very achievable with the right lender and a clear trading story. The lender wants to see the accounts, a credible projection, a deposit of usually 25 to 40 percent and relevant experience. The main difficulty is that the specialist hospitality lender pool is narrow, which is exactly what a broker is for: matching the case to the funder who will say yes.
What are the benefits of a commercial mortgage?
You own the premises rather than rent, so you build equity and control the asset, the interest is a deductible business cost, and for a trading hospitality business you fund the building and the goodwill together. Fixing the rate can give budgeting certainty, and once the trade is established the property can be refinanced to release equity or improve terms.
What deposit do I need for a commercial mortgage?
Usually 25 to 40 percent of the value, with hospitality trading assets often toward the higher end because part of the value is goodwill that lenders discount. A strong set of accounts, relevant experience or additional security can lower it. The full picture is at /guides/commercial-mortgage-deposit-requirements/.
Can I get a commercial mortgage for a hotel or pub?
Yes. Specialist lenders fund hotels, pubs, restaurants, guest houses and holiday lets, lending against a proportion of the going-concern value and the trade the property supports. See /asset-classes/hotel-finance/ and /asset-classes/pub-finance/ for how each is treated, and /guides/how-to-buy-a-hotel/ for the buying process.
Are commercial mortgages regulated?
In most cases no. A commercial mortgage on trading premises is unregulated business lending outside the FCA mortgage perimeter. A mortgage becomes regulated where the property will also be the borrower's own home, for example an owner living on site above a guest house, in which case we refer it to an FCA-authorised firm.
Can I get a commercial mortgage on an interest-only basis?
Often yes. Commercial lenders more readily offer interest-only or part interest-only than residential lenders, which lowers the monthly payment and protects cash flow, particularly useful in a seasonal hospitality business. The trade-off is that the capital is still owed at the end of the term and must be repaid or refinanced, so the exit needs to be credible from the start.
Ready to take a deal to market?
Send us the scheme and the numbers and we will come back with a view on fundability and likely terms within one working day.