What Is the Difference Between a Commercial Mortgage and a Buy-to-Let Mortgage?

If you've only ever dealt with residential mortgages, stepping into commercial property finance can feel like the rules have changed completely. In some ways, they have. The principles are similar, but lenders look at the deal through a very different lens.

The biggest difference is that a residential mortgage is largely about you - your salary, your personal outgoings, your credit history. A commercial mortgage is much more about the property and the income it generates, whether that's rental income or trading income from the business occupying the premises.

Bank of England held base rate at 4.25% in June 2026 - waiting for inflation to cool.

73% of UK SMEs expect to grow in the next 12 months - confidence remains strong.

What is the main difference between commercial and residential mortgages?

The fundamental difference is what the lender is assessing. With a residential mortgage, the lender is primarily asking whether your personal income can comfortably support the monthly repayment.

With a commercial mortgage, the lender is looking at the property and the business or rental income behind it. They want to know whether the asset can support the debt and whether there is enough margin if circumstances change.

How does the loan-to-value differ?

Residential mortgages can sometimes reach 90% or 95% LTV, depending on the borrower and circumstances. Commercial mortgages are generally lower, with 65-75% LTV being a realistic planning range for many straightforward cases.

That means you should generally expect to contribute a larger deposit when buying commercial property. Some particularly strong commercial cases can reach higher LTVs, while specialist or higher-risk property may be limited to substantially less.

Why is commercial mortgage underwriting more complicated?

Because there are more variables to consider. The lender may look at:

- The property's current and expected income

- The property's type and location

- The strength of any tenant covenant

- The borrower's business and trading history

- The borrower's experience and financial position

- The DSCR and lender stress testing

- The property's valuation and marketability

A residential mortgage generally has a much more standardised assessment process.

What is DSCR and why does it matter for commercial mortgages?

DSCR stands for Debt Service Coverage Ratio. It measures whether the income generated by the property or business is sufficient to cover the mortgage repayments.

For example, if annual net operating income is £30,000 and annual mortgage repayments are £24,000, the DSCR is 1.25x.

Commercial lenders often have minimum DSCR requirements and may also stress-test the calculation against a higher interest rate.

Are commercial mortgage interest rates higher than residential rates?

Commercial mortgage rates are often higher than standard residential mortgage rates because the underlying risk and underwriting are different. Pricing depends on the property, LTV, borrower, income, loan size, term, and lender appetite.

There is no single commercial mortgage rate that applies to every borrower. Comparing lenders based on the complete structure of the deal is usually more useful than comparing headline rates alone.

Are commercial mortgage terms different?

They can be. Residential mortgages are commonly available over longer terms, while commercial mortgages may have shorter repayment periods depending on the lender and structure.

Commercial loans may also be structured with interest-only periods, repayment mortgages, or other arrangements depending on the lender's criteria and the purpose of the borrowing.

Can you use a commercial mortgage for a property you occupy yourself?

Yes. If a business is buying premises to operate from, such as an office, shop, warehouse or industrial unit, an owner-occupied commercial mortgage may be appropriate.

The lender will typically assess the business's trading performance and ability to service the mortgage, rather than relying solely on the borrower's personal income.

Can you use a residential mortgage to buy commercial property?

Generally, no. If the property is genuinely commercial in use, you will usually need commercial property finance rather than a standard residential mortgage.

Mixed-use property can be more complicated. The appropriate finance depends on the residential and commercial proportions, how the property is used, and the lender's criteria.

What types of property can commercial mortgages finance?

Depending on the lender, commercial mortgages can be used for properties such as:

• Offices

• Retail units and shops

• Industrial and warehouse units

• Mixed-use properties

• Investment properties

• Specialist commercial property, subject to lender appetite

Which mortgage is right for you?

There isn't a universal answer. The right structure depends on what you are buying, whether you will occupy or let the property, how much you need to borrow, the available deposit, the income supporting the loan, and your long-term plans.

The key is matching the case to a lender whose criteria fit the deal rather than trying to force every application through the same type of mortgage.

The bottom line

Commercial and residential mortgages share the same basic idea - borrowing money against property - but the way lenders assess the risk is very different.

Commercial finance generally involves lower LTVs, DSCR calculations, more detailed underwriting, and more bespoke lending criteria. Understanding those differences before you apply can help you approach the right lenders with realistic expectations.

Disclosure: Money Pilot Ltd (FRN: 968705) is an Appointed Representative of Yellow Stone Finance Group Ltd which is authorised and regulated by the Financial Conduct Authority (FRN: 814533). Yellow Stone Finance Group Ltd is a credit broker not a lender. Money Pilot Ltd is Registered in England and Wales No: 13621432. You should always make sure you are able to afford any repayments as late or missed payments can affect your credit rating and access to future finance.

YOUR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE OR ANY OTHER DEBT SECURED ON IT.