How much you can borrow on a commercial mortgage

The two tests

Loan to value measures what the lender loses if it has to sell: the loan against the valuation, not against what you agreed to pay. Debt service cover measures whether the income covers the payments with room to spare, expressed as annual income divided by annual debt service.

Both have to pass. In practice the cover test binds first on most commercial property, because rental yields and interest rates are close enough together that income runs out before equity does.

Why the payment basis changes the answer

Cover tested against an interest only payment produces a much more comfortable ratio than the same loan tested against capital and interest, because the capital element is a large part of the payment on a twenty year term.

Lenders differ, and the difference can be tens of thousands of pounds of borrowing capacity. Ask which basis is used before you build a model around a number.

Valuation, not price

The loan is calculated against the lender's valuation. If it comes in below the price you agreed, your deposit absorbs the difference and it does so at the worst moment, close to exchange.

Ask early whose valuer is used, who pays, and whether you see the report. You will normally pay whatever the outcome, which makes the question about appetite worth asking before the instruction, not after.

Stress testing

Lenders test cover at a rate above the one you are paying, because a facility written today may reprice. Bank Rate has moved three times in the recent past, from 4.25% to 4.00% to 3.75% between May and December 2025, which is the kind of movement the stress is there to survive.

Ask what rate the cover is tested at rather than what rate you are being offered. The second decides your payment; the first decides whether you get the loan.