Helping you understand Commercial Mortgages better

A commercial mortgage is any loan secured on property which is not your residence. Buy to let mortgages are a special type of high volume commercial mortgage which is packaged for a volume market. But since almost every other kind of premises are different, each loan has to be assessed individually and priced according to the risk.

  • When are commercial mortgages used?

    Commercial mortgages generally take over where business loans finish. Business loans up to £25,000 are unsecured, but for larger amounts lenders need security in order to reduce the risk to themselves. Because of the legal and administrative costs of taking security on commercial property it is considered uneconomic to borrow under £50,000 this way, and some lenders have a minimum of £75,000 or more.

  • How to find the best deal

    Because of the complexity we have teamed up with specialist commercial mortgage brokers who offer an online service to help you find the best deal.

  • What can be offered as security?

    Generally lenders take the property you are buying as the only security for the loan, which is typically 70% of the value of the property, and ask for a cash deposit for the balance of the purchase price. If you don’t have the cash you can offer the lender additional security, which is typically other properties which you have considerable equity in, but there could be a charge over other assets such as an insurance policy or shares.

  • Can I get a mortgage on a leasehold property?

    Only if the lease remaining is more than 70 years, for most lenders, otherwise you will need additional security.

  • Why can’t I find a definite rate?

    The rates charged for commercial mortgages and business loans are not pre-determined like personal loans usually are. In each and every case when an application is made for a commercial mortgage a lending manager looks at it carefully to assess the risk level in making the proposed loan. A great deal of information is required for this decision. The lending manager will vary the rate offered to take account of the riskiness of the loan. Larger loans with a low risk will get the best rates. Lenders usually have a risk profile that they work to, so if your loan falls outside their risk profile it will be refused.

  • How much can I borrow?

    For owner occupied properties you can find a 70-75% mortgage. If it is an investment then the amount you can borrow will be determined by the rental income generated by the investment, but will not exceed 65% of the purchase price. If you are buying a business which includes goodwill, stock etc then the amount available will be further reduced.

  • Are all commercial mortgages variable rate?

    No, but most are. Typically a rate will be quoted as X% over base or LIBOR, and this in residential terms would be called a tracker mortgage. Fixed rate mortgages are available and for amounts under £500,000, where the lender takes the rate risk themselves, they may be advantageous. But mortgages where the lender passes the risk on to the borrower by using a “Swap” contract are best avoided.

  • Arrangement fees

    Whilst arrangement fees are usually added to the loan when it completes, some lenders want some money to cover their work if you don’t accept their offer. In this case they may charge a commitment fee, which is part of the overall arrangement fee, but is payable with your formal application, and is non-refundable. Arrangement fees are typically 1% -2% of the loan amount for loans up to £1 million, with the smaller loans getting the higher rates.

  • Valuation Fees

    Commercial properties are far more variable than residential ones, so a valuer will be required to visit the property and write a 20-30 page report about it to the lender. Typically residential properties are not visited by a valuer today, which is why they are much cheaper than commercial valuations, which start at around £500 for a simple case, but again because of variety are not done on a fixed price but from a bespoke quotation. This is payable to the lender after an initial indicative offer has been accepted.

  • Legal Fees

    You will be required to pay both your own legal fees and those of the lender. Again because of the variety of property legal fees will vary with complexity, but start at around £500 for each party. Savings in cost and time can be made where it is agreed that both parties will use different partners in the same firm for representation.

  • Using a broker

    It makes sense to use a specialist commercial broker who has the contacts and market knowledge to get you the best deal. The broker has to present your case to the lenders, so you must be truthful and fully co-operative in your dealings with your broker.

  • Broker fees

    Many brokers charge for finding commercial mortgages, expect to pay a fee of up to 1% of the loan value, but don’t agree to pay anything until the broker has produced a loan offer at terms that you have pre-agreed with them.




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