FREE Commercial Mortgage Advice
“We know that time is precious for you, we can work around your availability while searching for the most competitive mortgage products and overseeing your mortgage application from start to finish”.
Jonathan Smith – (CeMAP, BA Hons, Aff SWW, CeRER)
When you want to purchase a property for your business premises or as an investment, you need a commercial mortgage. You may be ready to find your own office space or have outgrown your existing premises, needing to expand them or move into a bigger space to cater to your growing workforce. You may wish to increase the size of your investment portfolio or to develop a property. Whatever your need for a commercial mortgage, it’s a step up from a business loan in that you can borrow a higher amount than £25,000. As you require a significant amount, the lender will need security in the form of the business property to reduce their risk.
Commercial mortgages can be complex and are handled on a case-by-case basis. At Trinity Finance, our highly experienced commercial mortgage specialists have unrestricted access to the market and work closely with commercial lenders. This allows them to source the right mortgage deal to suit your needs and situation and to tailor your application for the best chances of success.
What is a commercial mortgage?
Commercial mortgages are medium to long-term loans that are secured against commercial (non-residential) properties. You can use a commercial mortgage to:
- Buy or refinance a property, such as an investment property for buy-to-let purposes or business premises
- Refurbish your business premises
- Release capital to use in your business
- Develop a property
Commercial mortgages can be applied to commercial and mixed-use properties as well as land. The loan terms vary, ranging from about 3 years to longer terms of 25 or even 30 years, for example.
Who can apply for a commercial mortgage?
This type of mortgage is available to you as an individual, a sole trader, a partnership, a limited company, a limited liability partnership (LLP) or an overseas applicant. It’s suitable for you as a business owner or as someone looking to invest in property. Commercial lenders take a flexible approach when assessing applications and consider each one on a case-by-case basis. You need to provide adequate security and a deposit as well as being able to pass the lender’s affordability checks. We’ll go through this in more detail later on.
The types of commercial mortgages
Depending on your need for a commercial mortgage, there are different types to choose from. The three main ones are owner-occupied, commercial investment and property development mortgages.
Owner-occupied commercial mortgage
An owner-occupied commercial mortgage is used when you want to buy a property as your business premises. With this loan, you can either purchase the premises that your business is already operating from or obtain new premises for your business to be based at.
Commercial investment mortgage
A commercial investment mortgage applies when you want to buy a property to rent out. If you decide to let your property to residential tenants, you need a residential buy-to-let mortgage. However, if you wish to let the property to another business, a commercial buy-to-let mortgage is needed.
Property development commercial mortgage
When you’re looking to build a property, make comprehensive renovations or convert a property from commercial to residential use or vice versa, you need a property development commercial mortgage. Once the development project is finished, you can rent out the property, occupy it or sell it for profit.
How much can you borrow with a commercial mortgage?
Unless your business has sufficient cash available to buy a property outright, you’ll need to borrow a large sum. As mentioned above, commercial mortgages apply when you need a loan that’s higher than £25,000. The amount you can borrow depends on the type of commercial mortgage you need, the loan-to-value (LTV) ratio you’re looking for and the lender’s criteria.
The loan-to-value on a mortgage for commercial property
Usually, you can borrow 70% to 75% of the value when it comes to an owner-occupied property. When buying a property as a commercial investment, you can generally borrow up to 65% of the value, depending on the anticipated rental income. Our mortgage brokers work closely with commercial lenders who offer different LTVs depending on the security you offer and the industry sector that the commercial mortgage applies to. For example, if your commercial mortgage application relates to a medical profession, you’ll probably be offered a higher LTV. Some lenders offer 100% commercial mortgages if you can offer additional security, such as another property.
Your commercial mortgage deposit
Many lenders require you to pay a hefty deposit of at least 30% of the property’s value. Some lenders may accept a lower amount, such as less than 20%. You’ll pay a much higher interest rate to benefit from this, however. It’s also possible to obtain a 100% loan-to-value commercial mortgage with some lenders, as mentioned above. You’ll be charged very high rates, though, and will be required to provide further security, such as your home.
Commercial mortgage criteria
As with any mortgage, you need to pass the lender’s affordability checks. This is to ensure that your business can afford to repay the loan and that the property’s value is sufficient enough to cover the loan should you default on your mortgage. The lender will examine your business accounts and want to know your projected profit. A property valuation is usually carried out and the lender may require information about your personal finances.
If you’re setting up a new business, you’ll need to pay a much larger deposit — usually at least 50%. This is to compensate for your lack of trading history and to reduce the level of risk for the lender. Even if you have an established business, the more deposit you can pay, the more favourably the lender will look upon your application.
For a commercial investment mortgage, the anticipated rental income is taken into account for the affordability criteria. The lender will expect you to achieve a certain percentage above the monthly mortgage amount that will be payable. For example, the lender’s requirement may be that the rent you receive must be 45% higher than the monthly payment for your mortgage.
The documentation required
The more information you can provide, the easier it is for your commercial mortgage broker to prepare a detailed application. Having everything to hand at the start of the process prevents unnecessary delays later on if vital information is found to be missing. To ensure that your application proceeds efficiently, we recommend you prepare:
- Proof of your identity and address
- Your personal and business bank statements
- Documentation relating to income, expenditure, assets and liabilities
- A profit and loss forecast for the following year
- A business plan detailing how you expect to repay the loan
- Certified financial accounts
- The completed commercial mortgage application form
- The property particulars
- The property schedule
- Information about the lease, if applicable
- Copies of the tenancy agreements, if applicable
Can you get a commercial mortgage with a bad credit rating?
Don’t worry if you have a bad credit rating as you can still apply for a commercial mortgage. We work with commercial mortgage lenders that specialise in bad credit applications. Just be aware that you’ll have to pay higher rates because they’ll consider you to be more of a risk. Before applying, our mortgage brokers will advise you on ways to improve your credit score and on how to make your application more favourable. Then they’ll present your case to the right lender accordingly to help you secure a bad credit commercial mortgage.
How much does a commercial mortgage cost?
When applying for a commercial mortgage, there are various costs to budget for. These include the interest rate payable and the fees, as detailed below.
Commercial mortgage interest rates
The rates for commercial mortgages are higher than those for residential mortgages. This is because they are considered to be a higher risk for lenders. Commercial investment mortgage rates tend to be higher than the rates offered for owner-occupied commercial mortgages. The interest rates for both types are usually lower than those offered for normal business loans, however, as your property is used as collateral. They’re also tax-deductible. Most commercial mortgages are offered with variable rates although some fixed-rate deals can be found. The variable rates tend to be quoted as a percentage above the base rate in a similar way to tracker mortgages.
It’s hard to compare the rates for a commercial mortgage because the deal the lender agrees to will be tailored to your circumstances. The rate offered to you will ultimately be based on the strength of your application. It can be affected by the property’s value, the size of your deposit, the loan amount, the mortgage term, your credit history and the financial health of your company. Your dedicated mortgage broker will assess your case and approach the best lender for your specific requirements and situation. They will strive to secure the highest loan-to-value ratio for your commercial mortgage and the most competitive rate available.
Fees payable for a commercial mortgage
There are also various fees to consider when applying for a commercial mortgage:
- An arrangement fee. Also called a processing fee, this is charged by the lender to set up your mortgage. The arrangement fee can vary anywhere between 0.5% and 2.5% of the loan amount depending on the lender. This fee can usually be added to the commercial mortgage loan although some lenders prefer it to be paid on completion. Some lenders deduct a commitment fee from the arrangement fee once the formal mortgage offer has been accepted.
- A valuation fee. A valuation will need to be carried out on the property by a surveyor on behalf of the lender. This fee is usually higher than it would be for a residential property as the valuation is more complex.
- Legal costs. As well as paying your own legal costs, you’ll more than likely have to pay the lender’s legal costs. The legal fees charged for commercial mortgages tend to be higher than those for residential mortgages as they’re more complex.
A redemption penalty fee. In some cases, an early repayment charge will be made if you repay your loan earlier than the agreed date. Our mortgage brokers will ensure that you’re aware of this fee if it’s included in your lender’s terms.
Get expert help with a commercial mortgage
Get in touch with us now on 01322 907 000 to discuss your requirements for a commercial mortgage. Our expert mortgage brokers, located throughout Kent, London and Edinburgh, can manage your application to help you navigate the otherwise complex issue of commercial mortgages. They can quickly identify the type of mortgage you need and ascertain which lenders’ criteria you meet. They can then put together a tailored case and present it to the most suitable lender for a successful outcome. At Trinity Finance, we have access to exclusive broker-only deals so you can rest assured that you’ll benefit from a wider choice of deals and the best commercial mortgage rates available.
Before proceeding, our brokers can also advise you on alternative funding options that may be more suited to your needs. For example, remortgaging, a business loan or a bridging loan. If it’s out of office hours, simply send us an email at info@trinityfinance.co.uk or an enquiry via our contact form. One of our commercial mortgage specialists will reply to you as quickly as possible.
The benefits of a commercial mortgage
There are many advantages to having a commercial mortgage:
- Owning your premises gives your business stability and provides a substantial asset.
- You can borrow a significant amount compared with other forms of funding.
- Interest rates for commercial mortgages are lower than those for unsecured loans.
- The interest is tax-deductible.
- A long mortgage term lets you spread the loan over many years.
- Commercial mortgages can offer flexibility. For example, the option to make overpayments or the possibility of renting out a portion of your premises to another business to help with your monthly repayments.
- You may be able to take a capital repayment holiday, depending on the lender.
- If the property’s value increases, your capital increases so it’s a good long-term investment.
- You may benefit from higher returns by investing in a commercial property rather than a residential one.
The drawbacks of a commercial mortgage
There are some disadvantages to consider too:
- Most commercial mortgages are not regulated.
- There are various set-up costs to pay on top of the property purchase price and stamp duty, if applicable.
- The LTV offered by lenders for commercial mortgages is usually lower than the LTV for residential mortgages. This means you have to pay a significant deposit.
- Detailed checks have to be carried out so the process takes longer to complete than other types of loans, such as bridging finance.
- With a variable interest rate, your monthly repayments can go up as well as down.
- For leasehold properties, lenders usually require the lease to be over 70 years. If this isn’t the case, you may have to provide additional security.
- If the market turns, your property may decrease in value, which will decrease your capital.
- If you fail to make your mortgage repayments, you risk your property being repossessed.
- Selling a commercial property is harder than selling a residential property. This is especially the case if it has been adapted to accommodate a niche use. This can become complicated should you wish to relocate or sell quickly.
Alternatives to a commercial mortgage
If you’re unsure as to whether a commercial mortgage is the right financial solution, there are alternatives to consider. These include:
- A bridging loan. This short-term loan is quick to arrange, providing you with fast access to funds. The secured loan bridges a financial gap and the amount you can borrow usually starts at about £25,000. You’ll pay a high interest rate to benefit from the speed and flexibility of a bridging loan.
- A personal loan. You can borrow up to £25,000 with this type of loan. You don’t need to be a homeowner to benefit from a personal loan. Just check with the lender first that you can use the funds for your business.
- A short-term loan. This provides you with funds without having to commit to a long-term arrangement. You usually have to repay the loan within 18 months.
Realise your business ideas with a commercial mortgage
No matter what type of business premises you’re looking to buy or the amount you need to borrow, we’re here to find the best commercial mortgage deal for your individual circumstances. We strive to make the entire process straightforward and stress-free.
Our mortgage specialists are on hand to advise you on the documentation required. They can guide you on how to improve your commercial or semi-commercial mortgage application to boost your chances of success. They will check your circumstances and offer impartial advice on alternative funding options if these seem better suited to your needs. If you have an existing property with equity in it, for example, remortgaging may be a good choice. For fast access to funds or short-term finance, you may prefer a bridging loan. You may not like the idea of your property being used as collateral, in which case an unsecured loan is better.
Our commercial mortgage brokers are highly trained in this field and have an in-depth knowledge of the market. They can search for the best deals – including those only offered by lenders via brokers – with the most competitive rates on your behalf. This potentially saves you a lot of time and money no matter which financing route you take.
Give us a call on 01322 907 000 to speak with a specialist commercial mortgage broker in Kent, London or Edinburgh. If you prefer, send us an email at info@trinityfinance.co.uk to get the ball rolling with your commercial mortgage application. Alternatively, send us an enquiry via our contact form. One of our commercial specialists will be in touch with you as soon as possible
FAQs
How does a commercial mortgage compare with a bridging loan?
Commercial mortgages are taken out on a medium to long-term basis whereas bridging loans are a type of short-term finance. Commercial mortgages take longer to arrange but you’ll benefit from a lower interest rate than for a bridging loan.
Can you get a 100% commercial mortgage?
Yes, it’s possible to secure a 100% commercial mortgage via a specialist commercial mortgage lender. You’ll need to provide additional security to counteract the higher level of risk taken on by the lender. Lenders generally prefer this security to be a property with equity in it but other assets are considered.
Are commercial mortgages regulated?
The majority of commercial mortgages are not regulated due to their bespoke nature. However, if the property is mixed-use with 40% or more of it being residential, it will be regulated. For example, a commercial mortgage for a shop with a flat above it will be regulated by the Financial Conduct Authority (FCA).
Can you have more than one commercial mortgage?
Yes, provided that you can prove your affordability for each commercial mortgage that’s taken out at the same time. If you’re a commercial landlord with multiple properties, you can benefit from a portfolio mortgage. This covers all of your properties so that you only make one mortgage payment each month and deal with one lender instead of multiple lenders.