Commercial Mortgages FAQ
If you want financing to help you purchase a non-residential property for your business then you'll probably need a commerticla mortgage. If you need more information on commercial mortgages, our brief selection of frequently asked questions below is a good place to start.
What is a commercial mortgage?
A commercial mortgage is a loan that is secured on a non-residential property. This kind of business loan can be used to fund a huge variety of different buildings and properties, so each loan must be individually assessed and the interest rates you access will depend on the level of risk your purchase represents.
As with residential mortgages, your lender will often take the property that you are buying as the only security required for the loan, and a cash deposit will be required. In some cases, if you have no cash, you may be able to offer the lender additional security in the form of another property that you have considerable equity in.
How long can I get a commercial mortgage for?
Commercial mortgages offer terms that range from three to 25 years. If you're looking for a shorter-term financing solution, a bridging loan might be more appropriate; these offer finance for anywhere from a few weeks to 24 months.
Do all commercial mortgages have variable rates?
No, but most will. Typically, your rate will be quoted as a percentage over LIBOR, which is what would be called a tracker mortgage in residential purchasing terms. Although fixed-rate mortgages are available they can sometimes come with higher interest rates, and can sometimes only be accessed on properties worth less than £500,000.
Will I need to pay arrangement fees?
Although arrangement fees are usually added to the overall cost of the commercial mortgage loan, some lenders will want money to cover the work they do if you do not accept the offer given. In these circumstances, you may be charged a commitment fee which is payable with your application, and is non-refundable. Most arrangement fees are then lumped into the loan itself and usually come in at about 1-2% of the total loan amount.
How much can I borrow?
For an owner-occupied property, you may be able to receive a 70-75% mortgage. This would be the case if you were renting office premises for your own company to operate out of, for example. However, if you are purchasing a property as an investment, then the amount you will be permitted to borrow will be determined by the rental income that can be generated from the investment. However, it is unlikely that you will be able to access more than 65% of the purchase price of an investment property
What will I need to pay for valuation?
Because commercial properties are typically more expensive and subject to more price variability than their residential counterparts, a value expert will need to write a long-form report about the property to submit to the lender. Commercial valuations can start at around £500 for a simple case, but these prices can vary drastically as they are often based on bespoke quotations.
Why can't I find a definite commercial mortgage rate?
The rates that are typically charged for commercial mortgages are not pre-determined like most residential mortgages. In each case, when applications are processed for commercial mortgages, the lending manager must carefully evaluate and assess the unique level of risk represented in agreeing to the proposed loan.
Lending managers have to consider a multitude of factors to evaluate the riskiness of the loan, and large loans with low risk levels will receive the best interest rates.
Will I need to pay legal fees?
With commercial mortgages, borrowers are required to pay both their own legal fees, and the legal fees of the lender. Because of the variety of property available in the Commercial market, your legal fees will vary depending on the complexity of the work involved.
Can I use a commercial mortgage broker?
Some businesses may choose to use a specialist commercial broker who can give them access to the contacts that are required to get the best deal. Your broker will be responsible for presenting your case to lenders so you need to provide all the information required when filling out forms and making declarations.
Although many companies consider commercial mortgage brokers to be a worthwhile investment, it's worth noting that they will charge you for finding the right mortgage, and you should expect to pay a fee that is anywhere up to 1% of the loan value.