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    “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)

    Are you looking to expand your commercial property portfolio? From business and retail premises to leisure and health facilities, there’s a wealth of investment opportunities waiting to be explored. As an individual or a company, you need specific financing to either buy or refinance a commercial property for rental purposes. With a commercial investment mortgage, you can benefit from rental income derived from commercial or semi-commercial properties.

    At Trinity Finance, we understand the complex nature of commercial mortgages and strive to make the process as straightforward as possible for you. We work with commercial lenders who offer flexibility in their criteria and terms. Each application is handled on a case-by-case basis, reflecting the unique nature of your circumstances and commercial investment requirements. Here, we’ll explain what a commercial investment mortgage is, how much you can borrow, the criteria and the costs involved.

    What is a commercial investment mortgage?

    A commercial investment mortgage allows you to buy or refinance a commercial or semi-commercial property with the purpose of renting it out. This is different from an owner-occupied commercial mortgage, which is used to buy premises that your business can operate from. Also called commercial buy-to-let mortgages, commercial investment mortgages have higher rates than residential buy-to-let mortgages. We’ll explain the differences between the two types of buy-to-let mortgages later on in this guide. A commercial investment mortgage can be used in various ways. For example, you can:

    • Buy an investment property. This commercial property can then be rented out to a third party.
    • Release some equity. This provides you with a cash sum to fund a project.

    Remortgage to get a better deal. You may be coming to the end of a fixed-rate deal, for example. You can secure a new deal with a more competitive rate before reverting to the lender’s standard variable rate (SVR). Another example is that your circumstances may have changed since your original application. You may have had an adverse credit history and been penalised with higher rates. As your credit history has improved over time, you can remortgage to benefit from a lower rate.

    How to apply for a commercial mortgage

    How does a commercial investment mortgage work?

    You can submit an application for a commercial investment mortgage as an individual, a partnership, a limited company, a limited liability partnership (LLP), a special purpose vehicle (SPV), an offshore company, a pension fund or a trust. The loan is secured against the commercial or semi-commercial property, which you can buy either with vacant possession or a tenant in situ. A semi-commercial property is one that comprises both commercial and residential aspects. For example, a shop with a flat above it. Commercial investment mortgages can be used for a wide range of properties as well as land. Examples of these include:

    • Offices, including single units, serviced offices and office blocks
    • Business parks
    • Retail properties, including shops, shopping centres, retail parks and shopping parades
    • Restaurants, cafés, pubs, hotels and guesthouses
    • Factories, warehouses and industrial units
    • Care homes, nurseries and medical, dental and veterinary practices
    • Sports centres, cinemas, theatres, leisure parks, golf courses and caravan parks
    • Petrol stations, roadside services and car parks
    • Agricultural properties

    Commercial mortgages have medium to long loan terms, ranging from about 3 to 30 years. Lenders generally offer a loan-to-value (LTV) ratio of up to 75% for commercial investment mortgages. They are available on either an interest-only or repayment basis and you can choose between a fixed or variable rate.

    Should you choose an interest-only or a repayment commercial investment mortgage?

    With a repayment option, you repay some of the capital each month along with the interest. This means that when your mortgage term comes to an end, you will have repaid the mortgage loan in full. You will own the property outright at that point. This is the more expensive option of the two and will affect the monthly cash flow you have available. As an investor, you need to consider whether that extra monthly amount may be needed to fund other investments.

    With an interest-only option, you only pay the interest that is due on the loan each month. None of the capital is repaid until the end of the term. This helps you to manage your monthly cash flow better as you’re paying out a much smaller amount. It also frees up that cash flow to fund other investments should any opportunities arise. Some lenders allow for overpayments with this option. This allows you to reduce the amount of capital owed when the mortgage term ends. Our mortgage brokers will check that this is a possibility if you prefer an overpayment option to be included in an interest-only mortgage deal.

    What are the differences between residential and commercial buy-to-let mortgages?

    Both types of buy-to-let mortgages are used for investment properties that are rented out to tenants. However, there are a few differences between them, as detailed below.

    • Residential buy-to-let mortgages. This type of mortgage can only be used to invest in residential properties for rental purposes. You are usually restricted to owning 10 properties or less.
    • Commercial buy-to-let mortgages. Commercial investment mortgages apply to semi-commercial or commercial properties that are rented out to a third party.

    How much can you borrow with a commercial investment mortgage?

    Commercial investment loans tend to start at £25,000 and can go up to several million. Some lenders don’t have an upper limit. The amount you can borrow depends on various factors. These can include the condition of the property, its location, the tenant quality and the lease quality. As mentioned earlier, an LTV of up to 75% is usually offered by commercial mortgage lenders. This means a significant deposit of 25% has to be put down. As you might expect, though, the LTV that’s offered varies between lenders. Some, for example, offer different LTVs depending on whether the property is commercial or semi-commercial, such as up to 60% LTV for a commercial property but up to 70% LTV for a semi-commercial property.

    The industry sector that the property relates to also impacts the LTV offered. For example, if the property relates to the health sector, such as a dental practice or an optician, lenders are happier to offer higher LTVs. If, however, the property relates to a more volatile sector, such as a pub or shop, then lower LTVs are more likely. Another reason you may be offered a lower LTV is if you have an adverse credit rating. Lenders also take your experience with rental properties into account, both in a residential and a commercial aspect. Just bear in mind that the higher the LTV, the more interest you’re likely to pay.

    Can you arrange a commercial investment mortgage if you don’t have a deposit?

    If you’re unable to pay a deposit, 100% commercial investment mortgages are available via specialist commercial mortgage lenders. You’ll need to provide additional security to compensate for the higher level of risk taken on by the lender.

    Get expert advice on commercial investment mortgages

    Our mortgage brokers, located throughout Kent, London and Edinburgh, are here to answer your commercial investment mortgage queries. They can discuss your circumstances and financial requirements to ascertain whether a commercial investment mortgage is the right choice for you. If not, they’ll suggest alternatives that are more suitable for your situation. When you’re ready to proceed, they’ll check your affordability and let you know how much you can expect to borrow. They’ll help you to decide between an interest-only or a repayment mortgage as well as your preferred mortgage term.

    Don’t worry if you don’t have a deposit, have bad credit or are concerned that your property is in a more volatile sector. We deal with specialist commercial lenders who offer more flexibility with their criteria and terms. Each application is reviewed on a case-by-case basis, making it easier to get over any hurdles that may initially present themselves. When you’re ready to get started with a commercial investment mortgage, just give us a call on 01322 907 000. Alternatively, send us an email at info@trinityfinance.co.uk or an enquiry via our contact form. One of our commercial mortgage brokers will reply to you as quickly as possible with more details.

    Criteria for a commercial investment mortgage

    To be eligible for a commercial investment mortgage, the anticipated rental yield, quality of the lease and tenant quality are taken into consideration.

    • Anticipated rental yield. The amount you expect to receive as rental income is the primary focus of a lender. The monthly rent received will need to be a certain percentage of your expected monthly repayment, such as 125%. This is because there are additional risks involved with rental properties that need to be accounted for. These can include maintenance issues and void periods, for example.
    • Tenant quality. Financially secure tenants are favoured by lenders and make them more willing to offer a loan. Multiple tenants are deemed less of a risk than having just one or two. This is because the risk of non-payment is spread out when there are more tenants whereas the effects are greater if, for example, there’s only one tenant and they’re unable to pay the rent.
    • Quality of the lease. The length of the lease is one aspect that commercial lenders look at as well as the break clauses. Lenders vary with the lease terms they’ll accept, with some only agreeing to 10 years or more, some accepting a few years to 10 years and others willing to lend based on shorter leases.

    The costs involved with a commercial investment mortgage

    On top of your deposit, there are other costs to factor in when applying for a commercial mortgage for investment property. These include various fees and the interest charged on the loan, as detailed below.

    The interest rate for a commercial investment mortgage

    Commercial investment mortgages have higher rates of interest than owner-occupied commercial mortgages and residential buy-to-let mortgages. This is because of the higher risk that’s assumed by lenders for this type of commercial mortgage. You can choose between a fixed and variable rate to suit your preferences. The rate you’re charged will depend on various factors. Ultimately, it will be more favourable the lower the risk your case is perceived to be by the lender.

    The amount you need to borrow, the LTV you’re opting for, the financial security of your business and the tenant quality will all be considered. The length of the lease and its break clauses will also be factored in. Your personal financial standing will be taken into account and the lender will check your credit history and details of any assets you hold. As mentioned earlier, the type of commercial property you’re investing in and its condition are factored in. If the property relates to a favoured industry, such as healthcare, you’ll benefit from a better rate. If it relates to a more unstable industry, the interest rate payable will be higher. You can rest assured that our expert mortgage brokers will negotiate for a competitive interest rate on your behalf.

    The fees payable for a commercial investment mortgage

    There are also various fees to allow for when applying for a commercial investment property mortgage. These include:

    • An arrangement fee. To cover the costs of setting up your mortgage, the lender charges an arrangement or processing fee. The amount charged is typically between 1% and 2% of the loan amount. It is usually added to your commercial investment mortgage loan.
    • A valuation fee. A surveyor will be required to carry out a valuation of the commercial investment property. This will cost more than it would for a residential property as valuations for commercial properties are more complex.
    • Legal fees. The lender will more than likely require you to pay their legal costs as well as your own for this type of transaction. As commercial investment mortgages are more complex than residential mortgages, the legal fees are generally higher.
    • A redemption fee. In some instances, lenders include an early repayment charge in their terms. This means you have to pay a fee if you decide to repay the loan early. Our mortgage brokers will check the lender’s terms and make sure that you’re aware of this fee if it’s included.

    The benefits of having a commercial investment mortgage

    Securing a commercial investment mortgage can provide you with various benefits. These include:

    • A rental income. You can enjoy a long-term income from your commercial property tenants.
    • Interest rate flexibility. You can choose between a fixed or variable rate and an interest-only or repayment mortgage.
    • Flexible mortgage terms. Some lenders allow you to make overpayments, reducing the overall amount owed and the interest charged. There are also lenders who offer repayment holidays.
    • A long mortgage term. This allows you to spread your loan payments over a long period rather than having to find adequate funds to repay a short-term loan.

    A potential increase in the property’s value. If the market is buoyant when you’re ready to sell in the future, the property’s value may go up, increasing your profit.

    Expand your investment portfolio with a commercial investment mortgage

    At Trinity Finance, we understand how complex it can be to invest in commercial properties. That’s why we strive to make the mortgage application process as straightforward and stress-free as possible for you. Our mortgage brokers, based in Kent, London and Edinburgh, are ready to discuss your funding requirements and circumstances. They can then ascertain how much you can borrow for your semi-commercial or commercial investment property mortgage. They can help you to decide on the length of your mortgage term as well as whether to choose a repayment or an interest-only mortgage.

    If you’re unsure as to whether this type of mortgage is right for you, our expert brokers can advise you on the alternatives available, such as a bridging loan. They have access to exclusive broker-only deals offered by specialist commercial lenders. Therefore, you can rest assured they’ll negotiate the best commercial mortgage rate and terms for you, whether you’re looking for a new mortgage or to refinance.

    As well as investing in commercial mortgages, there are other financial aspects to consider, such as property insurance and mortgage protection. We offer a range of financial services and our mortgage and protection brokers will be happy to discuss these with you. If you’re unable to speak with an adviser by phone, simply email us at info@trinityfinance.co.uk or send an enquiry via our contact form. One of our expert brokers will reply to you as quickly as possible with more information on the financial products we have available.

    FAQs

    Having a bad credit rating won’t stop you from being able to secure a commercial investment mortgage. We deal with specialist bad credit commercial mortgage lenders who offer more flexibility with their lending criteria. Before you apply for a mortgage, we’ll guide you on how to increase your credit rating. When you’re ready to apply, we’ll approach the lender most suitable for dealing with your particular adverse credit case.

    As the lender’s risk will increase due to your adverse credit history, the interest rate you’ll have to pay will be higher. Once your credit record has improved, you can always remortgage to a new commercial investment deal. That way, you’ll be able to get a better deal at a more competitive rate.

    Most lenders offer a loan-to-value (LTV) of up to 75% for commercial investment mortgages. Therefore, you need a sizeable deposit of 25%. This isn’t set in stone as lenders look at each application on a case-by-case basis. If your commercial property is in a preferred industry, such as a medical profession, a higher LTV is likely to be offered. You can also secure a 100% commercial investment mortgage using a specialist lender. These lenders have more flexible criteria and terms although you’ll need to provide additional security.

    Many lenders allow you to make overpayments on your mortgage, helping to reduce the overall balance. This also reduces your loan term and the interest charged on the loan. Most lenders are happy for you to fully repay your commercial investment mortgage early without penalising you for doing so. Our mortgage brokers will ensure that you’re aware if the lender charges an early redemption fee and how much it will cost. That way, you can decide whether or not it’s worth it for you to repay the loan early.

    No, to use the commercial property as premises for your business to trade from, you need an owner-occupied commercial mortgage. Our mortgage brokers can arrange this for you. Just give us a call on 01322 907 000 to discuss this in more detail.

    No. Whilst the additional 3% stamp duty surcharge applies to the purchase of additional residential properties, a semi-commercial property doesn’t fall into this category. Therefore, you won’t need to pay the extra cost.