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Expert Commercial Mortgage Brokers

Are you looking to expand your business? Have you realised that the cost of renting has become too great? If so, you might find that a commercial mortgage can offer business finance options you weren’t aware of. Here’s everything you need to know.

  • What is a commercial mortgage?
  • The Long-Term Benefits of a Commercial Mortgage
  • Applying For a Commercial Mortgage: What You Need To Know
  • Commercial Mortgages For Start-Ups
  • How Refinancing Works
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Commercial Mortgage FAQ

What is a commercial mortgage?

Commercial mortgages are for buying (or refinancing) any land or property for business purposes. Similar to a traditional, residential mortgage, money is borrowed and secured against a property.

They can also be used to expand an existing business and for residential or commercial property development. Through securing a business to a property (e.g. pubs, restaurants, guesthouses) they tend to be the principal resource for financing any business development plan.

The commercial mortgage market represents a smaller market share than residential mortgages – although their overall value is disproportionately high. Unlike a residential mortgage, a commercial mortgage extends finance in four distinct ways:

  • Buying business premises
  • Securing land development ventures
  • Developing an owner-occupied business
  • Adding to a buy-to-let portfolio

Commercial mortgages are structured to suit both the lender and the borrower. The lender needs to see security on their loan and the borrower wants to benefit through reduced repayments (compared to renting).

A commercial property mortgage is usually a long-term loan (often up to 25 years) that provides the cash to purchase a business premises. The mortgage lender will typically lend up to 70% of the property’s value, leaving the business to pay its regular mortgage payments and utilising any working capital to fund the growth.

Because most commercial mortgages only offer up to 70% of the total value of the property, the lender relies on the business to find the rest in order to complete the purchase. This is often a substantial amount of money to come up with.

The Long-Term Benefits of a Commercial Mortgage

A commercial mortgage can do a lot more than just house your business, they are increasingly viewed as a source of business funding.

Owning your own business premises means you reduce the risk of being exposed to increasing rental charges. Commercial mortgages can help future-proof your business by allowing it to access equity as the property price increases over time.

There are a number of benefits to choosing a commercial mortgage, many of which seek to offer future sources of funding and finance:

  • Release capital for investment or growth
  • Consolidate business debts
  • Buy new equipment
  • Expand trading
  • Cheaper than renting
  • Option for sub-letting or leasing parts of the property to create an ancillary income.

Business owners can use a commercial mortgage to purchase a business property either for their own business use, to rent out, for purchasing a company, or unlocking the equity within already owned buildings. It has become an increasingly flexible way of financing your property purchase – so long as you have tangible assets to secure against.

How Refinancing Works

If your company already owns its own premises, remortgaging it can allow the opportunity of releasing equity within it.

It means it can be used as a very cost-effective funding option, especially at a time when property prices are set to increase. It can then reduce the costs of your borrowing or securing better rates on your borrowing.

Quite simply, refinancing a commercial mortgage means paying off one mortgage and replacing it with another. It is usually done to secure better interest rates, freeing up more cash for the business.

You can refinance your mortgage if the business owns, or even part owns a property. Commercial mortgages are calculated and set up in very different ways to residential mortgages. Because of this, when a business decides to refinance the terms of their mortgage, their negotiations can be supported with newer finance and valuation figures.

New accounts, projections or a more detailed set of balance sheets can influence the lender to offer reduced rates or loan more capital for the company. If you can demonstrate an improved credit history, it is likely the lender will have more confidence in your ability to make your repayments, which will further increasing the likelihood of better rates.

Mortgage term

The loan term can also vary dramatically – from 5 to 40 years. It’s a big financial commitment, so you need to understand what you want from your commercial mortgage and also what your mortgage lender wants from you.

Repayment

Interest rates are typically higher than with residential mortgages, as the lending is seen to be higher-risk. You will likely be required to offer a greater deposit of at least 30%, which equates to a lower loan to value (LTV) rate with the upside being greater equity.

Credit history

Your credit history will play a big part in whether or not your commercial mortgage application goes through. However, it isn’t always the single focus that is considered; you will also need to provide a comprehensive picture of your company including projections and a business plan.

Property usage

Not all commercial mortgages are the same; what and how you choose to use your property will affect both the amount you can borrow and the interest rate offered.

If you chose to buy an office block for your business and then decide to redevelop and sub-let part of the space, your commercial mortgage would have gone from an owner-occupied business to an investment business. In many cases this will incur a drop in your LTV.

Stamp duty

A land tax that is payable on all properties and the rate varies, but for a £500,000 property the amount you currently pay is £20,000.

Interest rates

Variable rates are set against the Bank of England base rates and will ‘vary’ depending on the set rate at the time. Fixed rates can be set for a certain period (often up to 5 years) offering guaranteed repayments, which can be calculated into business projections.

Fees

As with a residential mortgage, you should expect to pay a conveyancing (legal) fee, arrangement fee, a valuation fee and an administration charge.

Renting out your property

A popular and viable option for business owners to maximise the earning potential of their premises and offset the cost of their repayments.

Refurbishment

Always take into consideration the cost of renovating, installing facilities, decorating and general refurbishment jobs your property.may need.

Tax

The interest repayments on your commercial mortgage are tax-deductible.

 

Commercial Mortgages For Start-Ups

Simply put, if you are looking to buy premises for your start-up business without any trading history, then you will find yourself needing a much lower LTV ratio.

When raising the cash required to fund your property purchase, lenders will often realise that many companies are asset rich but cash poor. In this case, they will accept security from an existing property.

This means that for many start-ups, using an existing property, such as their own residential property can be a useful way in gaining a commercial mortgage. Most lenders accept this arrangement and you can even negotiate further down the line, once equity levels have been reached.

Using a commercial mortgage to secure your property can assist the future financing of your company. If the property goes up in price, your business capital does too. As the equity rises, you can use this equity to provide further funding for growth or expansion.

In the event of refurbishment costs and or varying time periods between purchase and being able to move in, there are bridging loans that can help a smooth transition into a new commercial property.


Mint Specialist Services

Bridging Loans

A bridging loan or bridge loan is a short term loan given to ‘bridge the gap’ between you buying a new house and selling your previous house.

Secured Loans

Secured loans – also known as homeowner loans, home loans or second-charge mortgages – allow you to borrow money while using your home as ‘security’ (also called ‘collateral’). This means the lender can sell your property if you aren’t keeping up with repayments, as a way of getting their money back.

Expat Mortgage

An expatriate (often shortened to expat) is a person either temporarily or permanently residing in a country other than that of their citizenship

Portfolio Mortgages

There are now 2.5 million landlords in the UK and successful investors have been able to establish a Buy to Let portfolio of a number of properties. But changes by the Prudential Regulation Authority have introduced new checks for Buy to Let portfolio mortgages.

Offset Mortgages

The idea behind an offset mortgage is simple and straightforward. By linking your mortgage and your savings, you can bring down the cost of your loan. This is because rather than earning interest, your savings reduce the amount of interest you pay on your mortgage.

Self Employed Mortgages

ne of the misconceptions about the mortgage market is that it is now very difficult for self employed people to get a self employed mortgage loan in order to buy a home. It’s certainly true that one type of mortgage used by the self employed in the past (self certification mortgage) is no longer available – but for many self-employed people, their chances of being able to borrow are still just as good as anyone else’s.

Contractor Mortgages

Being a contractor can offer you flexibility and independence, but also uncertainty – especially when buying a home. But as the number of freelancers and independent contractors in the UK climbs, don’t despair – many mortgage lenders could be willing to lend to you, even if your income jumps around.

Self Build Mortgages

Building your own home is not for the faint hearted. And on top of everything else, you’ll need to take out a special self build mortgage to finance it. We can walk you through the self-build process step-by-step, from finding land to hiring professionals to help you.

Private Bank Mortgages

Many borrowers needing a larger loan are unaware of the bespoke offerings that private banks have. With a product specifically tailored for you and your income, you may be surprised what our relationships in this area can achieve.

Commercial Mortgages

Are you looking to expand your business? Have you realised that the cost of renting has become too great? If so, you might find that a commercial mortgage can offer business finance options you weren’t aware of. Here’s everything you need to know.