Funds raised through a commercial mortgage can be used for a variety of purposes such as buying your business premises, purchasing the whole of an established business or unlocking some of the capital tied up in the premises.
There is a minimum mortgage amount of £25,000 but no maximum figure so it should not be a problem in catering for your funding needs as long as the underwriting requirements can be met when applying for a business mortgage.
Borrowers include Personal Applicants, Sole Traders, Partnerships, Limited Companies, Limited Liability Partnerships and Trusts.
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A Commercial Mortgage is a loan from a lender secured against a property which is not your main residence. The loans can be used to purchase residential Buy to Let Properties either singularly or as part of a portfolio of properties, or commercial properties (shops, factories etc.) which are either owner occupied or investment properties, and again singularly or as part of a portfolio.
Borrowers include Personal Applicants, Sole Traders, Partnerships, Limited Companies, Limited Liability Partnerships, Trusts, and Pension Scheme Borrowing.What security will I need to provide to the lender?
Property types which are suitable as security for the lender include residential, semi commercial and commercial property.
The lender will normally require a legal charge over the property that the finance is being raised for. Lenders will consider additional security where required in support of the loan - this means that you may be able to borrow up to 100% of the purchase price of the property.How much can I borrow?
Dependent on the type of property being purchased, you can borrow up to 85% of the purchase price or valuation for residential properties, and up to 80% for commercial properties.
An assessment of affordability to meet the lender's requirements will be required in all circumstances. 100% mortgages are more likely to be offered to professional businesses such as solicitors, accountants, doctors and veterinary surgeries.Can I borrow against leasehold properties?
Usually a remaining lease of 70 years will be required. If this is not the case, then additional security maybe required.Loan amounts and terms
Loans are usually for amounts in excess of £25K, and can have terms of between 1 and 30 years. Shorter loans can be arranged where required.
Variable rate loans as well as fixed rate loans are available. Dependent on the lender, they will quote an interest margin over either Bank of England Base Rate, or Bank LIBOR.
Interest rates for commercial mortgages are not always pre-determined, and some lenders will assess the application on a case-by-case basis to establish a suitable interest rate. Generally the less risk the lender perceives, and the lower the loan to value, the better the rate of interest will be. Interest only loan options are available.
Commercial mortgage rates are different than that of a residential or buy to let mortgage. Lenders do not have set rates based on Loan to Value (LTV), or the applicant(s) risk. Each business is reviewed individually on its circumstances.
When looking for a commercial mortgage, don’t just look at the rates and your monthly costs. Remember to take into account the overall costs over the duration of the loan.
Commercial mortgages are strictly for non-residential properties while buy-to-let lending relates to properties that are let out to paying tenants. Buy-to-let mortgages are made available by both commercial and residential lenders.
They are a particular type of high volume commercial mortgage and borrowers can fall into three different categories:Standard buy-to-let
This relates to the large number of landlords who purchase property as an investment. The owner of a buy-to-let property can benefit from any increases in property value and can use the rental income to meet the mortgage repayments.
Financers can offer lower interest rates to buy-to-let investors than for those needing mortgages for commercial properties because of high consumer demand.Accidental landlords
Relocation, failure to sell or moving in with a partner can all lead homeowners to become landlords. An increasing number of people are becoming accidental landlords who have property to rent out because of a change in their circumstances.
More often than not these properties will have been initially purchased using a standard mortgage. In these cases owners are advised to check their mortgage is appropriate and ensure they are filing and paying the correct tax. Capital gains tax (on any gains over the initial purchase price) will be charged at 18 per cent upon selling the property (excluding advance rate tax payers).
Homeowners becoming landlords for the first time should also be aware of tax deductions that cover letting fees, repairs and maintenance, energy efficiency improvements and mortgage interest charges.Houses in multiple occupation
Student accommodation and professional house shares can be classed as HMO properties. Despite being seen as a more high maintenance option for buy-to-let purchasers they can be potentially more lucrative.
Figures released by Platinum Property Partners reported that HMOs outperformed standard buy-to-lets by 40 per cent in the four years to 2014 in calculated profits.
Considerations that lenders will make on these type of properties include risks involved in letting the house to more than one resident. The main reason for this is that there is a greater chance that damage could be caused to the property.How do I get a commercial mortgage for my SME?
As with any savvy business commitment you need to shop around to get the best deal for you and your enterprise. Before enquiring you need to be sure that the mortgage you require is for business use and that you are a sole trader, partner or director with the authority to borrow on behalf of your business.
You need to have a clear idea of how much you want to borrow, what time period you’d like to make the repayments over and exactly why you need the new commercial premises.
In order to secure your loan an assessment of affordability will be made by lenders and security in support of the loan will be considered. The interest rate you are quoted is likely to take into account past performance, the current position and long term future plans.
The interest rate can fluctuate based on this information. Both commercial and buy-to-let mortgages are underwritten according to debt-service coverage. This relates to the amount of cash flow available to meet annual interest and principle payments on debt.
Put clearly, the ability to pay! Clarity of information will boost your chances of securing the best commercial mortgage deal for your SME or buy-to-let property and ensure you’ll have the keys before you know it!