If you’re looking to buy business premises, need funding to develop a property or want to invest in a property to rent out to another business, you need a commercial mortgage. Commercial properties tend to be more expensive than residential ones and, as a result, loans tend to be larger. They also pose more of a risk to lenders, resulting in higher interest rates than those offered for residential mortgages.
With a substantial loan secured against your non-residential property and higher rates being charged on your mortgage, the lender has adequate security. But what financial protection do you have with this type of funding — are commercial mortgages regulated?
What is a commercial mortgage?
A commercial mortgage is a loan used to buy or refinance non-residential property as well as land for commercial use. Commercial properties include offices, shops, restaurants, warehouses, industrial units, leisure centres, hotels and garages. Mixed-use properties are also financed by commercial mortgages, such as a shop with a flat above it or a pub that includes accommodation.
As well as buying or refinancing non-residential property, you can use a commercial mortgage to raise capital for your business, refurbish your business premises or develop a property. The loan is secured against your non-residential property. Commercial mortgages are more complex to arrange than residential mortgages. As such, lenders offer more flexibility and handle applications on a case-by-case basis.
What is the FCA?
The Financial Conduct Authority (FCA) regulates the UK’s financial services industry. It protects consumers and encourages healthy competition between providers to prevent any one company from having a monopoly over others. As a result, the FCA helps to keep the financial services industry stable.
Residential mortgages in the UK are regulated by the FCA, providing protection for borrowers. Lenders have to adhere to the FCA’s regulations, ensuring that their practices are fair and transparent.
Are commercial mortgages regulated by the FCA?
Whilst residential mortgages are regulated by the FCA, commercial mortgages are not usually regulated. This is because lenders have to be more flexible in their approach to commercial mortgages due to their complex nature.
As a commercial loan isn’t regulated, the terms and conditions can be set by the lender accordingly. This allows for the right commercial finance solution to be found for both you and the lender. However, this means that you won’t have the protection in place that you would as a residential borrower.
An exception to this is a loan for a commercial property that has at least 40% designated for residential purposes. In this case, the mortgage is regulated.
Get specialist commercial mortgage advice
As a commercial borrower, lenders expect you to understand what this type of mortgage entails and to ensure that you’re not going to face a financial challenge in the future as a result of borrowing.
That’s where our mortgage brokers come in. They can discuss your commercial loan needs and assess your circumstances before finding the right financial solution for you. Before you proceed, they will ensure that you’re fully aware of the lender’s terms and conditions. For a tailored service and the best commercial mortgage deal to suit your needs and circumstances, give us a call on 01322 907 000.