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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.
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.
This type of mortgage is used when you want to buy a property as your business premises. With this loan, you can either purchase the premises your business is already operating from or obtain new premises for your business to be based at.
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. If you wish to let the property to another business, a commercial buy-to-let mortgage is needed.
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 has finished, you can rent out the property, occupy it or sell it for profit.
How much can you borrow?
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 and the lender’s criteria. Usually, you can borrow 70% to 75% of the value for 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.
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%, but you’ll pay a much higher interest rate to benefit from this. It’s also possible to obtain a 100% loan-to-value commercial mortgage with some lenders. You’ll be penalised with very high rates, though, and will more than likely be required to provide further security, such as your home.
Commercial mortgage rates
The rates for commercial mortgages are higher than those for residential mortgages as they are considered to be a higher risk. They are usually lower than those offered for normal business loans, however, as your property is used as collateral and 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 over 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. He or she will strive to secure the highest loan-to-value ratio for your commercial mortgage and the most competitive rate available.
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, ascertain which lenders’ criteria you meet, put together a tailored case and present it to the most suitable lender for a successful outcome. Before proceeding, they can also advise you of alternative funding options that may be more suited to your needs, such as remortgaging, a business loan or a bridging loan. If it’s out of office hours, simply send us an email at firstname.lastname@example.org or an enquiry via our contact form and one of our commercial mortgage specialists will reply to you as quickly as possible.
The criteria for a commercial mortgage
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% – to compensate for your lack of trading history and 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.
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 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
What if you have a bad credit rating?
Don’t worry if you have a bad credit rating as you can still apply for a commercial mortgage. You’ll have to pay higher rates because lenders will consider you to be more of a risk but we work with commercial mortgage lenders that specialise in bad credit applications. Our brokers will present your case to them accordingly, having previously advised you of ways to improve your credit score before applying and then on how to make your application more favourable.
The benefits of a commercial mortgage
There are many advantages to having a commercial mortgage:
- Owning your premises gives your business stability and 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, such as 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.
- If the property’s value increases, your capital increases so it’s a good long-term investment.
As well as the large deposit requirement, there are other factors to consider before proceeding with a commercial mortgage:
- The process takes a lot longer than it does for short-term finance, such as a bridging loan.
- There are various fees to pay, such as a commitment fee, an arrangement fee, a valuation fee, the legal costs and stamp duty, if applicable.
- It’s a long-term commitment so you need to ensure you can maintain the mortgage repayments during the loan term.
- As this is a secured loan, you risk losing your property if you’re unable to keep up with the repayments.
- With a variable interest rate, your monthly repayments can go up as well as down.
- If the market turns, your property may decrease in value, which will decrease your capital.
- 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.
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 and make the entire process straightforward and stress-free.
Our mortgage specialists, located throughout Kent, London and Edinburgh, are on hand to advise you on the documentation required and guide you as to how to improve your application 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 with the most competitive rates on your behalf, potentially saving you a lot of time and money no matter which financing route you take.
Give us a call on 01322 907 000 or send us an email at email@example.com to get the ball rolling with your commercial mortgage application. Alternatively, send us an enquiry via our contact form and our commercial specialists will be in touch with you as soon as possible.