Interest-only commercial mortgages: costs, limits and exits

Published and reviewed 3 November 2026. General information, not advice. Figures are illustrations, not lender quotes.

The short version

With an interest-only commercial mortgage, the monthly payment covers only the interest, so the whole loan is still owed at the end. Most UK lenders now offer interest only for a set period, commonly up to five years at the start, rather than for the full term, and often at a lower loan to value than capital repayment.
On our worked £420,000 loan at 6.75%, interest only costs £2,362.50 a month against about £3,194 on a 20-year capital repayment mortgage. Over five years that keeps about £49,900 in the business, but costs about £9,250 more in interest and leaves £59,100 more of the loan still to repay.
The saving is bigger than it looks for a company. Interest is normally deductible for Corporation Tax, but capital repayments are not, so at the 25% main rate each £1 of capital repaid needs about £1.33 of profit before tax.
Investment lenders size interest-only loans on the rent. With rent of £38,000 a year and a lender wanting 130% cover, the maximum loan is about £433,000 on a 6.75% fix, but only about £334,000 if a variable rate is tested two points higher.
Every lender will ask how the balance will be repaid. If the building is worth 10% less when an interest-only period ends, a £420,000 loan on a £600,000 property becomes 78% of the value, and refinancing at 65% would leave a gap of about £69,000 to find.

What an interest-only commercial mortgage is

A commercial mortgage is a loan secured on business property: premises your company trades from, or a building it lets to tenants. On a capital repayment mortgage, each monthly payment covers the interest and repays part of the loan, so the balance falls to nothing by the end of the term. On an interest-only mortgage, the monthly payment covers the interest alone. The balance stays the same, and the whole loan must be repaid at the end of the interest-only period or the term.

In practice, few UK commercial lenders now offer interest only for the full life of a loan. Most offer one of the structures below, and the names vary between lenders. Ask exactly which one you are being quoted.

Interest-only commercial mortgage structures
Structure	How it works	Who typically offers it	What to watch
Interest-only period, then capital repayment	Interest only for an agreed period, often one to five years, then capital and interest for the rest of the term.	Specialist and challenger banks, some building societies. The most common structure in 2026.	The payment jumps when the interest-only period ends, because the same balance must now be repaid over fewer years.
Full interest only to the end of a facility	Interest only for the whole facility, often five to ten years, with the full balance due at the end.	Some specialist lenders, mainly for let investment property with strong rent cover.	You need a sale, a refinance or cash to repay the full amount on a fixed date.
Part and part	Part of the loan is on capital repayment and part on interest only, often half and half.	Several specialist lenders and building societies.	The interest-only part is still owed at the end. A lower payment than full repayment, a higher one than full interest only.
Partially amortising	Payments repay some capital, calculated as if over a long term, but a large balance is due when the facility ends.	Commercial investment lenders and banks.	Behaves like part and part. Check the balance due at the end in pounds.
Capital repayment holiday	A capital repayment loan where the lender agrees to take interest only for a short period, often 6 to 24 months.	High street banks, often at the start of a loan or when a business needs breathing space.	Usually needs the lender’s agreement each time. The term may not be extended, so later payments rise.

A bridging loan is also interest only, but it is a different product: short-term finance, usually for 3 to 18 months, often with the interest rolled up and added to the balance. Our guide to commercial bridging loans covers it. This guide is about term mortgages that run for years.

Who offers interest only, and on what terms

Interest only is widely available for let investment property and more restricted for owner-occupied premises. An investment lender expects the tenant’s rent to cover the interest and the building to be sold or refinanced later. An owner-occupier lender expects the business to repay from its profits, so it usually wants to see capital coming down sooner.

Interest-only terms by lender type, November 2026
Lender type	Interest-only offer	Typical limits
Specialist and challenger banks	Interest-only periods at the start of the loan, full interest-only facilities for investment property, and part and part.	Often up to five years. Some specialists offer longer. Lower maximum loan to value is common, often around 60% to 70%.
High street banks	Mainly capital repayment, with capital repayment holidays agreed case by case.	Holidays are often 6 to 24 months. Full interest only is rarer and usually for larger, lower-risk loans.
Building societies with commercial arms	Interest only or part and part on investment property, with shorter or no interest only for owner-occupiers.	Varies. Some offer half repayment and half interest only.
Development and bridging lenders	Always interest only, often rolled up.	Short terms only. Not a long-term mortgage.

A published example: Allica Bank

Allica Bank publishes its criteria for brokers. Its commercial mortgage product guide dated 24 September 2026 sets out:

Owner-occupied: loans of £150,000 to £10 million, with five years of interest only available at the start of the term for loans up to 75% loan to value. Debt service cover of 130% of adjusted earnings before interest, tax, depreciation and amortisation, or 150% for first-time buyers of premises.
Investment: loans of £150,000 to £15 million, with five years of interest only available on all investment products, and a five-year partially amortising option for commercial and semi-commercial property. Debt service cover of 130% for commercial and 120% for semi-commercial property.
How cover is tested: at the pay rate for fixed-rate mortgages and at the pay rate plus 2% for variable rates.
Costs: an arrangement fee of 1.5% for owner-occupied and 2% for investment loans, and early repayment charges on a five-year fix of 5%, 4%, 3%, 2% and 1% in years one to five.

Other lenders differ, sometimes a lot. Yorkshire Building Society’s commercial arm describes half repayment and half interest-only mortgages. Hampshire Trust Bank’s July 2026 semi-commercial rate sheet tests rent cover on two-year fixes at the pay rate plus 1%. Treat any one lender’s rules as an example, not the market.

Two rules hold almost everywhere. First, interest only is easier to get at a lower loan to value, because the lender’s balance never falls. Second, the lender will want a clear, credible plan for repaying the balance before it agrees, which we cover in the repayment plan below.

What it costs: interest only against capital repayment

This is the comparison that matters most, so here it is in pounds. The assumptions are illustrations, not a quote: a company borrows £420,000, 70% of a £600,000 building, at 6.75%, and for simplicity the rate is assumed to stay the same for the whole term.

The interest-only payment is simple arithmetic: £420,000 × 6.75% ÷ 12 = £2,362.50 a month, or £28,350 a year.

£420,000 at 6.75%: six ways to structure it
Structure	Monthly payment	Total interest	Still owed at the end
Capital repayment over 20 years	About £3,194	About £346,400	Nothing
Capital repayment over 25 years	About £2,902	About £450,500	Nothing
5 years interest only, then 15 years repayment (20 years in total)	£2,362.50, then about £3,717	About £390,700	Nothing
5 years interest only, then 20 years repayment (25 years in total)	£2,362.50, then about £3,194	About £488,200	Nothing
Part and part, half on repayment over 20 years	About £2,778	About £456,700	£210,000
Interest only for 20 years	£2,362.50	£567,000	£420,000

Three things stand out. The longer the balance stays high, the more interest you pay: full interest only costs about £220,600 more in interest than 20-year repayment and still leaves the whole loan to repay. A five-year interest-only period on a 20-year term pushes the payment up by about 57%, from £2,362.50 to about £3,717, when it ends. Adding the interest-only years on top, so the term becomes 25 years, keeps the later payment at the 20-year level but adds about £141,800 of interest.

Worked example: the first five years

Same loan, same rate. Compare five years of interest only with the first five years of a 20-year repayment mortgage.

Interest only: 60 payments of £2,362.50 = £141,750, all of it interest. The balance is still £420,000.
Capital repayment: 60 payments of about £3,194 = about £191,600. About £132,500 is interest and about £59,100 repays the loan, so the balance falls to about £360,900.
The difference: interest only keeps about £49,900 in the business over five years, but costs about £9,250 more in interest and leaves £59,100 more of the loan to repay.

Whether that is a good trade depends on what the £49,900 does. If it funds stock, staff or equipment that earns more than 6.75% after tax, interest only can make sense. If it simply sits in the current account, capital repayment is cheaper.

The commercial mortgage calculator shows the capital repayment figures for your own price, deposit, rate and term, and the business loan calculator does the same without the property. Our guide to commercial mortgage rates shows how much each half-point of rate adds.

The tax point most comparisons miss

For a limited company, the monthly payment is only part of the cash picture. Interest on a loan used for the business is normally deductible when working out taxable profits under the loan relationships rules. Repaying the capital is not an expense. It comes out of profit that has already been taxed.

At the Corporation Tax main rate of 25%, which applies to profits over £250,000, each £1 of capital repaid needs about £1.33 of profit before tax. At the 19% small profits rate, for profits up to £50,000, it needs about £1.23. Between the two, marginal relief applies and the effective rate on the top slice of profit is higher than 25%.

Worked example: the profit needed to repay capital

Capital repaid in year one of the 20-year repayment mortgage above: about £10,300.
Profit before tax needed to fund it at 25%: about £13,700. At 19%: about £12,700.
Capital repaid over five years: about £59,100, needing about £78,800 of profit before tax at 25%.

Interest only does not avoid this. The capital still has to be repaid one day, from post-tax profit, a sale or a new loan. It moves the timing, which can help a growing company that expects higher profits later and hurt one that does not.

For an individual landlord, the rules are different, and relief for finance costs on residential lettings is restricted to a basic rate tax credit. Our upcoming introduction service is for UK limited companies only. Very large borrowers should also know about the Corporate Interest Restriction, which can limit relief where a group’s net interest is over £2 million a year. Ask your accountant how the numbers work for your company before choosing.

How lenders test affordability on interest only

Lenders size commercial mortgages with two tests: the loan to value, and whether the income covers the payments with room to spare. Interest only changes the second test, sometimes in your favour.

Let investment property: interest or debt service cover

For a building let to tenants, the lender compares the rent with the yearly interest, or with the full repayment on a capital repayment loan, at a set rate. A requirement of 125% to 130% is common. Many lenders test variable rates, and sometimes shorter fixes, at a higher stressed rate.

Worked example: how far will £38,000 of rent stretch?

The building is worth £600,000 and let at £38,000 a year. The lender wants rent of 130% of the yearly interest, tests fixed rates at the pay rate and variable rates at the pay rate plus 2%, and lends up to 70% of the value, £420,000.

Interest only on a 6.75% five-year fix: maximum interest is £38,000 ÷ 1.3 = about £29,230 a year, so the maximum loan is about £433,000. The 70% cap of £420,000 applies, and cover at that loan is about 134%.
Interest only on a variable rate tested at 8.75%: the maximum loan falls to about £334,000.
Capital repayment over 25 years at 6.75%: if the lender tested the full repayment at 130%, the maximum loan would be about £352,600.

The same building, rent and lender produces maximum loans from about £334,000 to £420,000, depending only on the repayment basis and rate type. Ask each lender which rate and which payment it tests before you rely on a loan size.

Owner-occupied premises: profit cover

For premises your company trades from, the lender compares the business’s earnings with the yearly payments. Earnings usually means adjusted earnings before interest, tax, depreciation and amortisation, often with the rent you will no longer pay added back. Cover of 125% to 150% is typical. Some lenders test an owner-occupier interest-only loan as if it were on capital repayment, so interest only lowers the payment without raising the maximum loan.

Yearly earnings needed at 130% cover on £420,000 at 6.75%
Basis the lender tests	Yearly payments	Earnings needed at 130%
Interest only	£28,350	About £36,900
Capital repayment over 30 years	About £32,700	About £42,500
Capital repayment over 25 years	About £34,800	About £45,300
Capital repayment over 20 years	About £38,300	About £49,800

Our guide on how to get a commercial mortgage works through both tests on a full purchase, and our guide to commercial buy to let mortgages covers rent cover, leases and tenants in depth.

The repayment plan: what lenders accept

An interest-only mortgage is only as good as the plan for the balance. Lenders call it the exit or repayment strategy. They will ask for it at application and may check it again during the loan.

Ways to repay an interest-only commercial mortgage
Plan	How lenders tend to view it	The main risk
Sell the property	Accepted for investment property, especially with a long lease and a strong tenant. Less comfortable for premises the business needs to trade from.	The value may be lower when you need to sell, and selling your own premises means moving the business.
Refinance with another lender	Accepted when the loan to value and rent or profit cover leave room, but lenders know it depends on the market at the time.	Rates, values and lender appetite may all be worse. A lower value can leave a shortfall.
Switch to capital repayment	Common for owner-occupiers after an interest-only period, and often written into the loan.	A higher payment over fewer years. Test it now at today’s rate and at two points higher.
Build up cash or investments	Considered alongside other evidence, rarely accepted on its own.	Saving to repay usually costs more than repaying, unless the savings earn more than the mortgage rate.
Sell other assets or the business	Considered case by case, with evidence of value.	Timing and price are outside your control.

Worked example: when the value falls

Our company took five years of interest only on £420,000 against a £600,000 building, planning to refinance when the period ended. At that point:

If the building is still worth £600,000, the loan is 70% of the value. On the repayment mortgage it would have been about 60%.
If the value has fallen 10% to £540,000, the interest-only loan is about 78% of the value. A new lender capping the loan at 65% would lend £351,000, leaving a gap of about £69,000 to find. The repayment mortgage balance of about £360,900 would be about 67% of the value, a gap of under £10,000.
If the value has fallen to £500,000, the interest-only loan is 84% of the value, beyond what most term lenders will refinance.

Commercial property values can fall, as they did for some offices and shops in recent years. Test your plan against a lower value as well as today’s.

Saving the difference to repay later is less efficient than it sounds. To build £420,000 over 20 years, the company would need to set aside about £1,280 a month at a steady 3% return before tax. Add that to the £2,362.50 interest and the total is about £3,640 a month, more than the £3,194 repayment mortgage. Interest only works best when the money kept earns a better return in the business than the mortgage rate, and when the exit does not depend on everything going right.

Interest-only commercial mortgage rates in November 2026

Bank Rate is 3.75%, where it has been since December 2025, and the next Bank of England decision is due on 5 November 2026. Variable commercial mortgages are usually priced as a margin over Bank Rate, and fixed rates from the market cost of fixing money for the period plus a margin.

Many lenders charge the same rate for interest only as for capital repayment at the same loan to value, and manage the extra risk through a lower maximum loan, a shorter interest-only period or tighter cover tests. Others add a margin for interest only or restrict it to their higher-priced products. As one published example, these are Allica Bank’s published five-year fixed rates, checked on 3 November 2026, with the interest-only payment on our £420,000 loan at each rate:

Published five-year fixed rates and the interest-only payment on £420,000
Product	Up to 65% loan to value	Over 65% loan to value	Interest-only payment on £420,000
Owner-occupied commercial	6.50%	6.85%	£2,275 to about £2,398 a month
Commercial investment	7.90%	8.10%	£2,765 to £2,835 a month

Allica’s owner-occupied rates include a 0.50% discount for using its business current account. These are one lender’s rates, not a market average. Your rate depends on the loan to value, the property, the strength of the rent or profits, your track record and the fixed period. Our guide to commercial mortgage rates covers typical ranges across the market and what moves them.

Check what happens when a fixed rate ends. Hampshire Trust Bank’s July 2026 semi-commercial products, for example, revert to Bank Rate plus 5.65%, which would be 9.40% today. On interest only, a rise from 6.75% to 9.40% would add about £930 a month to the £420,000 example.

When interest only makes sense, and when it does not

Interest only is a tool for managing cash flow and timing, not a way to make borrowing cheaper. It tends to suit some situations far better than others.

When interest only tends to suit, and when it does not
Situation	Interest only can suit when	Capital repayment is usually better when
Investment property	The rent is secure, the lease is long, the loan to value is moderate and you plan to sell or refinance.	The rent only just covers the interest, the lease is short or the building needs work soon.
Buying your own premises	The business is growing and the cash saved funds stock, staff or equipment that earns more than the mortgage costs.	Profits are steady or falling, or the business would struggle with a payment jump in a few years.
After a purchase or refurbishment	A short interest-only period covers fit-out, a vacant unit being let or a seasonal dip.	There is no clear point at which the cash flow improves.
Near retirement or sale	The plan is to sell the property or business within the interest-only period, with a realistic value.	The sale is a hope rather than a plan.

A useful test: write down what the business will do with the money it keeps each month, and what it will earn. If the honest answer is “nothing in particular”, capital repayment is the cheaper choice.

What to check in an interest-only offer

Interest-only terms add a few lines to a commercial mortgage offer that are easy to miss. Check each one in writing before you accept. Our guide to commercial mortgage quotes covers every other line.

How long the interest-only period lasts, and whether it can be extended. Ask for the payment after it ends, in pounds.
The balance due at the end of the facility, for full interest only, part and part and partially amortising loans.
Loan to value covenants and revaluations. Can the lender revalue the building during the loan, and what happens if the loan to value rises above a limit? On an interest-only loan, a fall in value is not offset by a falling balance.
Rent or profit cover covenants, how often they are tested and what happens on a breach, such as a tenant leaving.
Overpayments and early repayment charges. Many lenders allow you to repay up to 10% of the balance each year without charge. Hampshire Trust Bank and Atom bank both publish a 10% allowance. That lets you pay capital down when cash allows.
The rate after any fix ends, and whether there is a floor on a variable rate.
Lease length against the loan. Lenders often want the lease to run beyond the interest-only period or the term. A break clause before the exit date is a risk to plan for.
Personal guarantees and other security. Lenders sometimes ask for a guarantee or extra security as a condition of interest only. Our guide to personal guarantees explains what you would be promising.

How to get an interest-only commercial mortgage, step by step

Run both sets of numbers. Work out the capital repayment figure with the commercial mortgage calculator, and the interest-only figure as the loan × rate ÷ 12. Test both at a rate two points higher.
Write the repayment plan. Sale, refinance, a switch to repayment or a combination, with a realistic value and date. Test it against a value 10% to 20% lower.
Prepare the evidence. For premises: two to three years of accounts, management accounts and a forecast. For let property: the lease, rent, tenant details and any schedule of tenancies. Our guide on how to get a commercial mortgage has the full list.
Ask lenders the right questions. Do you offer interest only for this property type and use? For how long, at what maximum loan to value, and at the same rate? Which rate and payment do you test cover at?
Compare offers over the time you will keep the loan, including fees, the payment after any interest-only period and the early repayment charges.
Diarise the end date. Start work on the refinance or switch at least six to twelve months before the interest-only period or facility ends.

Regulation, protection and complaints

A commercial mortgage to a limited company is generally outside the Financial Conduct Authority’s mortgage rules. A loan is a regulated mortgage contract only when the borrower is an individual or trustees and at least 40% of the land is used, or intended to be used, as a dwelling by the borrower or a related person. Our guide to how to get a commercial mortgage covers when that applies.

Unregulated does not mean unprotected. Many business lenders sign up to the Standards of Lending Practice for business customers, and smaller businesses may be able to take a complaint to the Financial Ombudsman Service if the lender cannot resolve it. Check the lender and any broker on the FCA Register.

The property is security for the loan. If the company cannot pay, or cannot repay the balance when it falls due, the lender can enforce its charge and sell the building, and pursue any guarantors for a shortfall. Talk to the lender early if the repayment plan looks uncertain. Lenders usually have more options six months before an end date than six days after it.

Where Business Loan Advice fits

We are not a lender or a broker and we do not give personal advice. We are preparing a service that will introduce UK limited companies directly to lenders, including for commercial mortgages on premises and investment property. No lenders are confirmed yet, so we cannot currently obtain quotes or make introductions. You will not pay us a fee. If a lender pays us commission after the service launches, we will tell you before asking your permission to refer you.

In the meantime, the commercial mortgage calculator and these guides are free to use with no sign-up. If your limited company is planning to borrow against commercial property, you can register its interest and we will contact you about the service launch. Read how we are paid for the details.

Common questions

What is an interest-only commercial mortgage?

It is a loan secured on business property where the monthly payment covers only the interest. The balance does not fall, so the whole loan must be repaid at the end of the interest-only period or the term, usually from a sale, a refinance or a switch to capital repayment.

Can you get an interest-only mortgage on commercial property?

Yes. Interest only is widely available for let investment property and more limited for owner-occupied premises. Most UK lenders offer it for a set period, commonly up to five years at the start of the loan, often at a lower loan to value than capital repayment.

How long can a commercial mortgage be interest only?

Commonly up to five years at the start of the term, after which the loan moves to capital repayment. Some specialist lenders offer longer interest-only periods or full interest-only facilities for strong investment property. High street banks more often offer capital repayment holidays of 6 to 24 months.

How much deposit do I need for an interest-only commercial mortgage?

Plan for at least 25% to 40% of the price. Many lenders cap interest-only loans at around 60% to 70% of the value, lower than for capital repayment. You will also need cash for stamp duty, valuation, legal and lender fees.

How do I calculate an interest-only commercial mortgage payment?

Multiply the loan by the yearly interest rate and divide by 12. On £420,000 at 6.75%, that is £2,362.50 a month. The commercial mortgage calculator shows the capital repayment figure for comparison.

Are interest-only commercial mortgage rates higher?

Not always. Many lenders charge the same rate as capital repayment at the same loan to value but lend less, offer a shorter interest-only period or apply tighter cover tests. Some add a margin. Compare the rate, fee and maximum loan for both bases.

Is interest only cheaper than capital repayment?

No. The monthly payment is lower, but you pay interest on the full balance for longer. On £420,000 at 6.75% over 20 years, full interest only costs £567,000 in interest and still leaves the loan to repay, against about £346,400 on capital repayment.

What happens at the end of an interest-only commercial mortgage?

The balance must be repaid. Most borrowers refinance, sell the property or switch to capital repayment. If the value has fallen or rates have risen, refinancing may not cover the full balance, so plan the exit early and test it against a lower value.

Can an owner-occupier get an interest-only commercial mortgage?

Yes, but usually on tighter terms. Lenders expect a trading business to repay from profits, so owner-occupiers often get a shorter interest-only period at the start of the loan. Allica Bank, for example, published five years at the start for loans up to 75% loan to value in September 2026.

How do lenders assess an interest-only commercial mortgage on a let property?

They compare the rent with the yearly interest at a set rate, often wanting rent of 125% to 130% of the interest. Variable rates are often tested two points higher. With rent of £38,000 and 130% cover, the maximum loan is about £433,000 at 6.75% but about £334,000 at 8.75%.

What is a part and part commercial mortgage?

Part of the loan is on capital repayment and part on interest only, often half and half. The payment sits between the two, and the interest-only part is still owed at the end. On £420,000 at 6.75% over 20 years, half and half costs about £2,778 a month and leaves £210,000 to repay.

Is an interest-only commercial mortgage tax deductible?

For a limited company, interest on a loan used for its business is normally deductible for Corporation Tax, but capital repayments are not. That makes interest only look better for cash flow in the early years. Ask your accountant how the rules apply to your company.

Can I switch my commercial mortgage to interest only?

Sometimes. Some lenders agree a capital repayment holiday or a switch to interest only, especially if the business is temporarily under pressure. It usually needs a credit review, may come with a fee or a higher rate, and increases later payments. Ask early.

Is an interest-only commercial mortgage regulated?

A commercial mortgage to a limited company is generally not a regulated mortgage contract. Regulation can apply when the borrower is an individual or trustees and at least 40% of the property is used as their home or a close relative’s.

Sources, checked 3 November 2026

Allica Bank: commercial mortgages product guide for intermediaries, 24 September 2026

Allica Bank: commercial mortgage rates, checked 3 November 2026

Hampshire Trust Bank: semi-commercial interest rates, July 2026

Atom bank: commercial fees and charges tariff, effective 8 June 2026

Yorkshire Building Society Commercial: interest only commercial mortgages explained

Bank of England: Monetary Policy Summary, September 2026

Bank of England: upcoming Monetary Policy Committee dates

GOV.UK: Corporation Tax rates and reliefs

HMRC: Corporate Finance Manual, loan relationships

GOV.UK: restriction on Corporation Tax relief for interest deductions

Legislation.gov.uk: Regulated Activities Order 2001, article 61