Commercial Mortgages explained in detail

October 26th, 2016
Commercial Mortgages explained in detail

When you secure a loan by using commercial property like an office, warehouse, shop or any property that is not your residence then it is termed as a commercial mortgage. The earnings from either renting or using the property would be used for acquiring refurbishing or redeveloping the property. There are several different premises that can be used for commercial mortgage and so each loan needs separate assessment and individual pricing.

These mortgages work best where business loans end. Normally, business loans up to £25,000 are not secured. However, when the amount is higher than £25,000 then lenders needs collateral, which could be any kind of property. In order to keep things profitable, you must borrow amounts which are equal to or greater than £50,000. Some lenders even go to £75,000 as their minimum limit. This is because the legal and administrative cost of securing a commercial property may prove very high unless it is secured for an amount equal to or greater than £50,000.

What should be offered as the security?

Generally, lenders keep the property itself as collateral. The total loan amount would include 70% of the value of the property and you need to deposit cash for the balance of the purchase price. In the absence of cash, you can offer the lender another property as an additional security to compensate for the balance amount.

Is it possible to get a mortgage on a leasehold property?

Yes it is! Nonetheless, lenders would want the property to have at least 70 years of lease remaining or else you will need to offer additional security.

What is the exact duration for commercial mortgages?

The normal term period for commercial mortgages lies between 3 and 25 years. Finances for a term period shorter than this are also available and they are often termed as bridging loans or property development loans. The term period for these short loans could be anything starting from a few weeks to 24 months.

Do we get commercial mortgages at variable rate?

Not all but most of them are! Normally, the rate would be X% higher than the base rate or LIBOR, which is nothing but a tracker mortgage. Lenders offer fixed rate mortgages for any amount less than £500,000. However, you need legal advice to understand the complex derivatives of these kinds of mortgages.

Can I get a definite rate for a commercial mortgage?

Unlike personal loans, the rates of business loans or commercial mortgages are not pre-defined. The lender considers each mortgage separately, performs risk benefit analysis and then decides the rate for the loan. Best rates are offered for large loans with lower risk and the rates will vary with each mortgage. Again, if your loan falls out of the risk profile, which the lenders have set for themselves then it will be easily refused.

What is the maximum amount that I can borrow as a commercial mortgage?

If it is an owner occupied property, then you can get 70-75% as mortgage. For investments, the amount would be decided in accordance with the rental you get out of the property. In no circumstance, the loan amount would be more than 65% of the purchase price. Mortgage amount will be further reduced for businesses that involve goodwill activities or stock, etc.

Are there any extra fees that I need to pay for a commercial mortgage?

You need to be ready to pay the following types of fees incurred during a non-residential mortgage.

Arrangement fee: There is an arrangement fee for the legalities of the loan. This is added to the actual loan on completion. Moreover, some lenders would expect you to pay money to cover their expenses in case you do not accept their offer. This amount is non-refundable and is termed as a commitment fee. You need to pay 1% to 2% of the loan amount as an arrangement fee for loans up to £1 million. If the loan is smaller than this rate is higher.

Valuation fee: To judge the commercial property, you need a valuer to visit the property and write a comprehensive report of it. The lowest fee for valuation equals to £500 and may vary as per the property. You need to pay this to the lender after accepting the offer.

Legal fee: The amount of money spent on the legal expenses which includes those incurred by the lender should be paid as legal fee. It starts with £500 and varies with the size and type of the property.

Broker fee: You need to hire a specialist commercial broker to get you the best deal and to present your case to the lender. For this, you need to pay some fee to the broker which can be up to 1% of the loan value.

These are some of the fees which you need to be paid for getting the best commercial mortgage deal. It is always advisable to shop around and find lenders that offer the best commercial mortgage rates.

To sum it all, you can easily get a commercial mortgage provided you meet the bare minimum requirements for the loan and can manage the various fees incurred for the entire deal. If you want to get more information about mortgages, personal loans and to get the best commercial mortgage rates comparison then do check our website or call our friendly team of financial experts on 08008807656.

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