Are you ready to buy a property to use as your business premises? Do you want to convert a residential property to a commercial one? Are you looking into investment opportunities and want to buy a property that you can rent out to a business?
For any of these transactions, you need a commercial mortgage — but what happens if you’ve never purchased a property before? Can you get a first-time buyer commercial mortgage?
What is a commercial mortgage?
First, we’ll explain what a commercial mortgage is. It’s a loan that’s secured on non-residential property, such as offices, shops, hotels, warehouses, pubs, nursing homes, factories and farms, as well as mixed-use properties and land. You can use a commercial mortgage to buy or refinance a property, develop a property, refurbish your business premises or release capital for your business to use. The loan term typically varies from 3 to 30 years.
Types of commercial mortgages
There are three main types of commercial mortgages: owner-occupied, commercial investment and property development. Your intended use of the mortgage will determine the type you need.
Owner-occupied commercial mortgage
This type of commercial mortgage enables you to buy a property that you intend to use for your business. You can use the loan to either buy new premises to trade from or buy the premises that your business is already operating from.
Commercial investment mortgage
Also known as a commercial buy-to-let mortgage, this enables you to buy a property to rent out to another business. Some houses in multiple occupation (HMOs) require commercial mortgages if they don’t fall under the standard HMO mortgage requirements.
Property development commercial mortgage
This type of commercial mortgage provides you with the funds to build a property, convert a property (either from residential to commercial or vice versa) or to make comprehensive renovations. Once you’ve finished your development project, you can sell the property, occupy it or rent it out.
Can you get a first-time buyer commercial mortgage?
Commercial lenders assess each application on a case-by-case basis. This flexible approach means that it’s possible to secure a commercial mortgage when you’re a first-time buyer. Yes, there are some lenders who prefer borrowers to already be a homeowner or have owned buy-to-let properties for a specific period. This doesn’t apply to all lenders, however, so being a first-time buyer won’t prevent you from securing a commercial mortgage as long as you meet the relevant lender’s criteria.
To begin with, you’ll need to pay a larger deposit than you would for a standard residential mortgage. Deposit requirements for commercial mortgages typically range between 20% and 40%. The lender will check the financial health of your business and your creditworthiness. They may also require details of your personal finances.
Tips for securing a first-time buyer commercial mortgage
There are a few things you can do to make your commercial mortgage application more appealing to a lender:
- Prepare a business plan. It’s essential to have a solid business plan when arranging a commercial mortgage. You need to include your intended use for the property, your business goals, a detailed market analysis and financial projections.
- Show that you have budgeted for both upfront and ongoing costs. These can include arrangement, valuation and legal fees as well as insurance costs, taxes and maintenance costs.
- Choose the right property type. It’s better to look for a standard property, such as a shop with a flat above it or some office space. The more complex the property, the more risk there is for the lender, reducing the options available to you.
- Find a tenanted property. If you’re considering a commercial property to rent out, having tenants in situ can be preferable for lenders. This is because you’ll benefit from an immediate income, which avoids the risk of void periods and shows the lender that there is an established cash flow.
Secure a commercial mortgage as a first-time buyer
Our mortgage brokers are here to help you navigate the world of commercial mortgages. It can seem daunting, especially as a first-time buyer, but there’s really no need with the right preparation. The more you have prepared in advance, the smoother the process, and our brokers will guide you on how to do this.
As a bespoke product, a commercial mortgage is customised to the property as well as your circumstances and needs. Our brokers will present your tailored application to the lender most suited to your case to ensure a successful outcome.
When you’re ready to start your commercial mortgage journey, just give us a call on 01322 907 000. We strive to make the entire process straightforward and stress-free, ensuring that you benefit from the best rate and terms for your needs.