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Grow with a Commercial Mortgage

If you’re a business owner needing to expand your company, find new premises, or develop a site to create a new income stream, a commercial mortgage may help you reduce risk and expand safely.

Working with our expert advisers, we’ll discover the best rates for you and search exhaustively to get you a fair loan with a good rate and manageable repayments.

We want to help you expand your business and with the right commercial mortgage, the property you need to do that is within your grasp.

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What are Commercial Mortgages?

A commercial mortgage, or business mortgage, is a loan secured on a property which is not your residence. This type of loan allows you to buy property or land for business needs and is a medium/long-term loan that can last for up to 25 years.

By using a specialist commercial mortgage broker, you’ll be able to quickly find the right commercial mortgage product. There are no standard mortgage loans when it comes to commercial property, everything is bespoke and will depend entirely on your budget, the type of building, and the type of business you own.

How do Business Mortgages Work

If you have a residential mortgage then you will be familiar with the basic way in which a commercial mortgage functions. You pay back the mortgage over time and must keep up with those payments to ensure you don’t default on your loan.

Other aspects of commercial mortgages include:

  • Require deposits of between 25-50%
  • Repayment rates depend on your individual circumstances
  • LTV ratio is usually 70-75% of your business property’s value
  • Commercial mortgages can be either interest-only or capital repayment
  • Switch to a commercial mortgage once your business loan is finished

If the property you are interested in is going to be used as an investment, you will require a commercial buy-to-let mortgage. In this case, the amount you’ll be able to borrow will be determined by the rental income you generate from the property; this will not exceed 65% of the property’s price.

What are the Different Types of Commercial Mortgage?

Owner-occupier – Buy property and use it as a trading premises for your business venture. Business mortgages have no fixed interest rates but the rates you do get will be better than a regular business loan.

Commercial investment – For properties you want to rent out. Commercial buy-to-let mortgages are ideal to use when expanding a property portfolio.

What Fees Will I Pay for a Commercial Property Mortgage?

As with any large loan, there are additional fees to consider. These include:

Valuation fees – The lender sends a valuer to visit the property you want to buy. They assess its worth and write a report for the lender. Because this type of valuation is not as straightforward as a residential assessment, considering things like rental yield and marketability, they are usually more expensive, starting at £500 for the simplest case.

Arrangement fees – A fee you pay to the lender for arranging the loan, you can choose for this to be added to your loan amount, paying it off in instalments with your regular mortgage payments. It is also not uncommon for some lenders to ask for this fee to cover their work costs. Usually a commercial mortgage arrangement fee is between 0.75% and 2% of the loan amount.

Legal fees – A highly variable fee that will be paid to your solicitor. This fee will depend on the solicitor you choose and the work that needs to be carried out. Lenders will usually have legal fees as well. Commercial mortgage legal fees start from a few hundred pounds.

Broker fees – A broker fee will be around 1% of the loan value. Using a mortgage broker helps you discover the best deals from a whole plethora of lenders you may otherwise not have access to. Mortgage brokers also give your application to the lender and work with them closely, helping to increase the likelihood of being accepted for a loan.

How Do I Apply for a Commercial Mortgage?

Lenders view a commercial mortgage as a higher risk than residential mortgages. Because of this, it is best to use the services of a mortgage broker to help guide you through the process, ensuring you meet the strict criteria every step of the way.

To apply for a commercial mortgage, you will need:

  • A fully completed application form
  • Proof of identity, income, and address
  • Assets and liabilities statement
  • At least two months of bank statements
  • A full three years of certified audited financial accounts
  • Property details
  • Details of lease or tenancy agreements
  • A business plan

Other things to Consider When Taking Out a Commercial Land Mortgage

Commercial mortgages can be complex. There are a few things to keep in mind before you decide to opt for this type of mortgage.

Do you have a large enough deposit?

Make sure you can pay both the deposit and the monthly repayments before committing. Deposits for this type of mortgage are usually much larger than those for a residential mortgage, this is because a mortgage on a commercial property is considered to be higher risk.

Do you have a bad credit rating?

If you have bad credit it doesn’t mean you won’t be able to get a commercial mortgage. You will need to explain to your lender why you have bad credit and you will probably have to pay a higher interest rate to account for the added risk to the lender.

How long has your business been trading?

If you have a newer business this will be seen as a bigger risk to a lender. If your lender does see this as a higher risk you may have to provide a personal guarantee. Your Loan-To-Value (LTV) rate will also sit around 50% of the purchase price.

Are you aware of the risks?

A commercial mortgage is a secured loan. What this means in practice is that the property will be used as collateral against the loan; if you fail to keep up with the repayments your property will be taken by the lender for payment.

Ready to apply for your commercial mortgage?

The Mortgage Broker will support you through your commercial mortgage application and our experts work through an exhaustive amount of lenders to find the right deal for you. Get in contact now to discuss your options and get started on your application today.

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