Commercial mortgages usually involve several fees in addition to the interest charged on the loan. These may include lender arrangement fees, valuation costs, legal fees and broker fees depending on the complexity of the transaction.
Because commercial property finance is assessed on a case-by-case basis, the exact fees involved can vary depending on the lender, the property being financed and the structure of the deal.
Understanding the different types of fees can help borrowers plan the overall cost of arranging commercial property finance.
Lender Arrangement Fees
Many commercial mortgage lenders charge an arrangement fee for setting up the loan.
This fee is typically calculated as a percentage of the loan amount and may range from around 1% to 2% of the total borrowing.
In some cases, the arrangement fee can be added to the mortgage balance rather than paid upfront, although this increases the total amount borrowed.
Valuation Fees
Commercial lenders normally require an independent valuation of the property being financed.
Valuation fees can vary depending on:
- the size and type of property
- the complexity of the valuation
- the lender’s requirements
Because commercial properties can vary significantly in value and use, valuation costs are often higher than those associated with residential mortgages.
Legal Fees
Legal work is usually required when arranging a commercial mortgage.
Borrowers typically pay their own solicitor’s fees and may also be responsible for the lender’s legal costs.
Legal fees cover work such as reviewing the mortgage documents, verifying property ownership and ensuring the lender’s security over the property is correctly registered.
Broker Fees
Some commercial mortgage brokers charge a fee for arranging finance.
This fee structure can vary depending on the adviser and the complexity of the transaction.
Broker fees may be:
- a fixed fee
- a percentage of the loan amount
- a combination of broker fees and lender commission
Understanding how commercial mortgage brokers are paid can help borrowers compare different advisers.
Survey and Specialist Report Costs
In some cases, lenders may require additional reports before approving a commercial mortgage.
These might include:
- building surveys
- environmental reports
- specialist property assessments
The cost of these reports usually depends on the property type and the lender’s requirements.
Other Potential Costs
Depending on the transaction, borrowers may also encounter additional costs when arranging commercial property finance.
These could include:
- exit fees when repaying the loan
- early repayment charges
- administration or facility fees
Because every commercial mortgage transaction is different, borrowers should ask lenders and advisers to explain all potential costs before proceeding.
Why Understanding Fees Is Important
Commercial property finance often involves larger transactions and more complex lending structures than residential mortgages.
Understanding the full cost of arranging a commercial mortgage can help borrowers evaluate the overall affordability of the loan.
It can also help borrowers compare different lenders and funding options more effectively.
Why Many Borrowers Use Commercial Mortgage Brokers
Commercial mortgage lenders vary widely in how they structure fees and assess transactions.
Commercial mortgage brokers can help borrowers identify lenders whose terms and costs are appropriate for their circumstances.
They can also explain how different lenders structure their fees and help borrowers compare available options across the market.
Related guides
- What are current commercial mortgage rates in the UK?
- What do commercial mortgage brokers do?
- How do mortgages work on commercial property?
Need Help Arranging Commercial Property Finance?
Commercial mortgage terms and fees can vary significantly depending on the property, borrower profile and lender criteria.
Explore our Best Commercial Mortgage Brokers in the UK guide to compare experienced advisers who specialise in arranging commercial property finance.
