Commercial Mortgages
What is a Commercial Mortgage?
A commercial mortgage is secured against commercial property, with the proceeds being used to acquire, refinance or redevelop commercial premises.
Why Choose a Commercial Mortgage?
Commercial mortgages help business owners to secure the funds they need to buy property or land for their business.
How it Works
A commercial mortgage is secured by applying a first legal charge on your existing business premises.
Commercial Mortgages at a Glance
Eligibility:
Individuals or businesses including trading businesses or commercial buy to let (also known as an investment property)
LTV:
Up to 75%
Loan Amounts:
From £50,000 +
Interest Rates:
From 3% per year
Repayment Types:
Capital repayment and Interest Only options
Terms:
5 – 30 years.
Repayment terms:
Monthly repayments. Capital or interest only options.
Acceptable Security:
Any commercial or semi-commercial property considered.
What is a Commercial Mortgage?
Commercial mortgages are loans secured against commercial properties such as an office building, factories and warehouses, retail shops, restaurants and bars, care homes or any other commercially used premises or mixed-use business, residential investment properties or land.
Commercial mortgages may be used for the purchase of premises or land, or to release cash or equity from an existing commercial asset, to generate working capital or refinance.
How do Commercial Mortgages Work?
Commercial mortgage lenders generally take a more flexible approach to assessing applications vs. other types of funding providers, and can look at a wide range of different scenarios. Typically commercial lenders will apply a cap on the loan to value (LTV) at 70%, which would mean a borrower would be required to put down a minimum 30% deposit.
Some lenders are able to offer 100% LTV on a commercial mortgage basis, however this would require the borrower to put up additional security to be used as collateral and may only be an option in certain scenarios or business sectors.
Commercial mortgage terms, much like their residential counterpart, range from between 3 to 30 years, with loans between £50k and £5millon+. Rates are typically higher than with a residential mortgage, but lower than other types of commercial borrowing or business loans. Rates can vary depending on what the lender perceives as the overall risk of the application. Typically, they will vary from between 2.25% to as high as 10% in some cases. Mortgages can be freehold or leasehold although with a leasehold the lender will generally want to see a minimum of 70 years remaining on the lease.
Given the versatility of commercial mortgages they typically fall under two types:
- Owner occupied where the property is being purchased by the same individual that is the owner of the company.
- A commercial investment whereby the property is being let out to somebody else unrelated to a business such as with a residential buy-to-let mortgage for example.
Semi commercial mortgages are also available which comprise of both commercial and residential or mixed-use properties.
Why Choose a Commercial Mortgage?
There are several reasons you may wish to take out a commercial mortgage, such as purchasing your existing businesses’ trading premises, which will in turn add the property as an asset to your business. It also removes the risk of rent increases, losing the property at short notice, reducing the monthly cost along with permitting the expansion of your business.
You may also be looking to release funds from a commercial property that you already own to invest elsewhere or for other business purposes, such as to lease it out to generate additional income or purchasing residential buy-to-let property or HMOs (homes of multiple occupancy). All of which will increase your portfolio and in turn increase your rental income and profits.
Commercial mortgages or loans can be used for all types of commercial property, and being versatile they can be used for a range of business purposes, such as:
- Buying additional property
- Refinancing or consolidating any current high-rate business loans (such as unsecured borrowing)
- Assisting with general cashflow and working capital
- For expansion or purchasing additional business assets
- Buying vehicles, machinery and other equipment
- Refurbishing owner-occupied business premises
Key Benefits:
- Remove the risk of potential rent increases from your landlord in leased premises
- Undertake renovations, refurbishment, and décor changes without having to ask permission
- Interest payments on a commercial mortgage are tax deductible
- Benefit from additional revenue streams such as by sub-letting space that you may not be using
- Release equity from within an existing owned property for use in consolidating more expensive other debts, for business cashflow, a new property purchase, or property renovations
- Typically works out cheaper than leasing a premise meaning savings on monthly costs
Who is Eligible?
Both sole traders and Ltd companies can qualify for a commercial mortgage. It is generally easier to obtain a commercial mortgage under a business that has been trading for at least several years as the lender will be able to see evidence of the recent trading history, allowing them to make a more informed decision. They can however also base a decision on a strong business plan and forecast.
Typically, a lender will assess an application based on credit history, income or rents, profits, and the deposit you have available.
To find out more about commercial mortgages and if you could be eligible, please get in touch with one of our property finance specialists today.
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