Commercial Mortgages

A Commercial Mortgage is a long-term loan (typically up to 25 years) that is used to purchase (or refinance) any land or property used for business purposes. Just like a traditional residential mortgage, money is borrowed and secured against a property. While there are less Commercial Mortgage products available on the market, their overall value is disproportionately higher than residential mortgages.

There are many benefits of using a Commercial Mortgage, such as:

• To buy business premises (and save on monthly rent)
• To secure land for development
• To expand an owner-occupied business
• To add to a buy-to-let portfolio
• To release capital for investment or growth
• To consolidate business debts
• To buy new equipment
• To sub-let or lease part of the building for additional income

Using a commercial mortgage to purchase a business premises can lead to long-term capital gains. If the property goes up in value, the business capital does too. As the equity rises, this can then be used to re-invest into the business to fund expansion or purchase additional investments.

Most legal businesses can use a Commercial Mortgage, including:

• Shops
• Offices
• Factories
• Warehouses
• Restaurants
• Pubs
• Hotels and B&Bs
• Working farms
• Mixed-use properties

Given that most lenders will provide up to 70% LTV, this means you will be required to provide a deposit of 30%.

Most lenders will understand that many companies are asset rich but cash poor and therefore will accept security from an existing property.

Due to being higher-risk than a residential mortgage, interest rates on a commercial mortgage are higher, too. Commercial Mortgage rates usually start from 2.95% , and will differ from lender to lender based on the amount borrowed and the loan term.

With a variable commercial mortgage, the rates are set against the Bank of England so will change based on the set rate at the time. Conversely, with a fixed rate mortgage, the rates are locked in for a specific period of time.

Given that commercial mortgages are used for business purposes, limited companies, SPVs, LLPs, partnerships and sole traders can typically apply for a commercial mortgage. Additionally, some lenders will even consider clients with poor credit, low income and start-ups.

Although the criteria varies from lender to lender, most lenders will take the following into consideration:

• Cash flow
• Level of debt
• Property usage
• Current and projected business income
• Ability to repay the loan
• 3 year’s trading accounts
• Asset and liability statements
• Last 3 months’ business bank statements
• Certified proof of ID
• Proof of residency (utility bill or bank statement)
• Details and profiles of all directors and partners of the business

The exact amounts will vary across the market, however you can typically expect to pay:

• Broker fee
• Application fee
• Valuation fee
• Arrangement fee
• Legal fee
• Exit fee
• Administration fee