Fixed rate, variable rate, or wait? Making sense of commercial mortgage decisions
If you’re looking at a commercial mortgage right now, you’ve probably noticed the conversation has changed. A few years ago, people just asked, “What’s the rate?” Now they’re asking, “Should I fix? Should I sit on variable? Should I wait six months and see what happens?”
Here’s the thing. There’s no single right answer. But there is a right answer for your business, and most of the time it’s simpler to work out than the lender paperwork makes it look.
I’ll walk you through how I think about this with clients, in plain English. No jargon, no scare tactics, and no pretending I can tell you what the Bank of England is going to do next Thursday.
Start with what you actually need, not what the rate is doing
Before you even look at fixed versus variable, it’s worth being honest about a few things:
- How long are you planning to hold this property?
- How tight is your monthly cashflow?
- Could your business cope if the payment went up by 1% or 2%?
- Do you want certainty, or are you comfortable riding the ups and downs?
These four questions matter more than the headline rate. I’ve seen owners chase the cheapest deal and end up on the wrong product for their situation, and I’ve seen others pay a little more for peace of mind and never regret it.
Fixed rate commercial mortgages: certainty, with a trade-off
A fixed rate does exactly what it says. You agree a rate, usually for two, three, five, or sometimes ten years, and that’s what you pay every month for that period. Nothing changes.
The appeal is obvious. You know what’s leaving your account, you can budget properly, and if rates climb you’re insulated from it. For a lot of owners that’s worth a great deal, especially if margins are tight or the business is sensitive to its monthly outgoings.
The trade-off is two things, really. First, fixed rates are usually a bit higher than the variable rate on day one. You’re paying a premium for the certainty. Second, they usually come with early repayment charges, so getting out early can cost you. More on those further down.
Variable rates: more flexibility, more exposure
A variable rate, sometimes called a tracker, moves with the base rate or with the lender’s own reference rate. When rates fall, your payment falls. When they rise, your payment rises.
Variable products tend to be more flexible, with lower or no early repayment charges and more room to refinance or redeem early if your situation changes. If you genuinely think rates are coming down, or you might want to sell or refinance in the short term, variable can make sense.
But let’s be honest, hardly anyone is choosing variable at the moment. Most owners are asking me about two, three and five year fixed rates, not variable, because very few people are confident rates are about to fall. It’s also worth knowing that not every commercial lender even offers a variable product. They’re far more common in the buy-to-let space, and you tend to find that when more clients ask for them, more lenders start to offer them.
A quick word on affordability (ICR)
Lenders test whether the rental income comfortably covers the mortgage payments. That test is called the Interest Coverage Ratio, or ICR. Right now, lenders tend to view five year fixed deals more favourably on affordability, which means a shorter fixed rate or a variable rate can leave you with a higher bar to clear. In plain terms, that can actually restrict how much you’re able to borrow. So it isn’t just you who likes the certainty of a longer fix. The lender often does too.
Should I wait for rates to drop?
This is the question I get asked most. “Paul, should I just hold off for six months?”
Sometimes yes. Often no. Here’s why. Waiting has a cost. If you’re holding off on a purchase, someone else might buy the property. If you’re sitting on an expensive bridging loan or short-term facility while you wait for a rate you like, you’re burning money every month.
Lenders aren’t sentimental. They price for risk and for their own cost of funding. Even if base rates ease a little, that doesn’t always feed through to commercial mortgage rates the way people expect. So “waiting for a better rate” can quietly turn into “waiting indefinitely while it costs you more”. The real question isn’t, “Will rates come down?” It’s, “What’s it costing me to wait, and what am I giving up if I do?”
What I actually ask when someone says “should I fix or go variable?”
When a client asks me that, I tend to ask three things straight back:
- Could you genuinely cope if the repayments went up? On a larger loan, even a small move in rate is a significant swing in pounds. I want to know you could manage if rates rose, not just today.
- How well do you understand the way rates can move, and what’s your own view on where they’re heading? Your read on it matters.
- How long do you want that certainty for, and how important is it to keep the monthly cost the same?
There’s no one sector where I always lean fixed or always lean variable. It depends on the business in front of me. The one general rule: the shorter the loan term, the smaller the impact of any rate movement.
How to compare two deals properly
When you’re weighing a fixed rate against a variable, or one lender against another, don’t just look at the headline rate. The single most common mistake I see is judging a deal on the pay rate alone.
A better rate can be wiped out by a bigger arrangement fee. Those fees can run anywhere from 0% to 7%, so a lovely-looking rate might have quietly added several percent to the amount you owe. And unlike a residential mortgage, commercial deals rarely come with free valuations and legal work, so factor those in too.
So when you compare, look at:
- The monthly payment on each, today
- What that payment looks like if rates rise 1%, 2% or 3%
- The arrangement fees, and the legal and valuation costs
- The early repayment charges, and over what period
- The total cost over the term you’ll realistically hold the loan
That last one matters most, and it’s the one people skip.
Are early repayment charges as bad as people think?
Early repayment charges, or ERCs, apply if you redeem the mortgage during the fixed period. They can look steep, but they usually reduce year by year, often something like 5%, then 4%, 3%, 2% and 1%. Every fixed rate has them, but they vary considerably from lender to lender.
Here’s the part people miss. Most good lenders give you more flexibility than you’d think before any charge bites. You can usually overpay up to 10% of the capital each year penalty-free. Many let you choose interest-only or repayment, and some will let you switch from one to the other. So a fixed rate doesn’t always mean you’re locked in with no room to move.
Is now the right time to refinance commercial property?
If you’ve got a commercial mortgage coming to the end of a fixed period, or you’ve slipped onto a lender’s reversion rate, it’s worth a proper review. Not a panic, just a review.
Your current lender will often try to keep your business by offering a reasonable rate. Where they don’t, there are other options worth looking at. It’s worth knowing that a large amount of finance is due to come off fixed rates during 2026. Industry estimates put it north of £20 billion, and honestly I think that figure may be understated. Most of those borrowers will be moving onto higher rates than they’ve been used to, so shopping around matters more than ever.
Refinancing can also be your chance to raise a bit of capital for a sensible purpose, whether that’s clearing more expensive debt or funding improvements to the property. And on that note, it’s a good moment to think about energy efficiency. In the buy-to-let world, EPC requirements are expected to rise to a C or above by 2030. For commercial property, leases generally need to be E or above, and the expectation is that this tightens over the next few years in the same direction. Refinancing can be a tidy way to fund the work needed to keep a property compliant.
One more hopeful point. If your property has gone up in value, or you’ve had a stronger trading year, that can unlock a better deal than you expect. Dropping into a lower loan-to-value band, for example below 65% or 75%, can save thousands of pounds a year. Every case is assessed on its own merits, but it’s well worth checking.
Things worth reviewing:
- What rate am I actually paying right now, all in?
- What’s available across the market for a property and business like mine?
- Are there early repayment charges if I move?
- Has my property value moved, and has my loan-to-value improved?
- Is the business trading better than when I took the original deal?
A lot of owners stay put because it feels easier. Sometimes that’s right. Often it isn’t. You’d be surprised how many businesses are quietly overpaying because nobody’s had a proper look in three or four years.
What I tell every client
It’s about giving your business breathing space, not piling on pressure.
Fix if you need certainty. Go variable if you genuinely have the flexibility and the appetite for it. Don’t let “the rate I might have got” stop you getting on with what you’re actually trying to do, whether that’s buying premises, refinancing, or freeing up cash. And don’t try to time the market. I’ve been doing this a long time, and the people who try to time it usually lose more than they save.
How to choose the right broker (and what a good one actually does)
Here’s something most people don’t realise. The majority of the deals we place start life with the high street, then end up with a specialist or alternative lender, simply because of the client’s profile and where lender appetite sits. That’s normal. It’s not a sign anything’s wrong.
The best way to shop around is to pick a commercial finance broker you trust, ideally one referred to you by your accountant, financial adviser, or a friend who’s been through it. You don’t need to approach more than one. Just make sure they offer whole-of-market. Once you’ve handed over the information they need, let them do the legwork for you.
Two things to check. Make sure your broker is upfront about the fees they charge and the commission they receive from lenders. At Howe Commercial Finance we’re always transparent about how we’re paid. And look for a broker who adds value beyond the rate, with the right connections for environmental searches, valuations, conveyancing and other professional services. To us, business is personal. We like to become part of your team.
If you’re weighing this up right now
If you’re trying to decide between fixed and variable, thinking about refinancing, or you just want a straight answer on whether now’s the right time, get in touch. I’ll talk you through your options in plain English. No pressure, no jargon. That’s what we’re here for.
Paul Howe
Director, Howe Commercial Finance
