"> Commercial Mortgage Finance Guide + Best Rates (updated Jan 2021)
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Commercial Mortgages

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Commercial investment mortgages are for individuals and companies purchasing a business property as an asset, profiting from rents and property value appreciation. With access to private banks and commercial lenders, we have extensive knowledge of dealing with this type of lending requirement. Appointing an expert mortgage adviser can help make applying for a commercial loan more manageable.

Our commercial customers include a portfolio of 17 care homes worth a combined £30 million, a warehouse worth over £5 million, and flats worth over £4 million. We often help property developers, both residential and commercial, to raise funding and we have supported the various development of commercial schemes.

Can you Get a Mortgage on a Commercial Property?

Commercial mortgage is a type of loan that is secured against a commercial property or land for business purposes. Commercial mortgages operate similarly to residential mortgages. This type of mortgage is a long-term investment.

What is a Commercial Mortgage?

Largemortageloans.com can structure commercial mortgages in many different ways, onshore or offshore, through a company name or trust, or a pension fund, like a Self Invested Pension Plan or with an individual. As mentioned above, these types of loans are taken out by individuals or companies to secure a property or land for investment purposes.

Buyers will typically pay a higher interest rate on commercial mortgages than regular residential mortgages due to the risk involved, which is why at Largemortgageloans.com we do our utmost to ensure that our clients receive the lowest interest rates based on the overall circumstances. The potential for a lucrative return can far outweigh the risks involved. Common reasons that you may want a commercial mortgage loan might include investing in a commercial buy-to-let property, land for development, public houses, hotels & guest houses, restaurants, farms and other agricultural lands, leisure industry, warehouses and factory units, or office accommodation. If you want to find out if your business qualifies for a commercial mortgage click here.

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Customers can struggle to find a high street lender in the current economic climate that can cater to a commercial mortgage’s needs, which is where a commercial mortgage adviser like us can help. We have access to private banks and commercial lenders, and we have extensive knowledge of dealing with this type of lending requirement. The lenders we work with will have more flexible underwriting criteria, and our experience allows us to negotiate on your behalf for your ideal commercial investment. We can accommodate all types of profiles, international or domestic.

What Types of Commercial Mortgages are There?

There are three main types of commercial mortgages available to you:

  • Commercial buy-to-let mortgages. Suppose you want to buy a building to let it out to another company or individual
  • Residential buy-to-let mortgages. If you wish to purchase residential property to rent it out, it may surprise you to know that you could take out a commercial mortgage. Landlords with an extensive property portfolio tend to use this type of set-up especially when they have more than 10 properties in their portfolio.
  • Owner Occupied. This type of loan is taken out by an individual or company that is explicitly buying a property to operate their business.

What Can be Used as Security for a Commercial Mortgage?

Lenders will often want to know that in  a worse case  scenario, where repayments are not met, that the lender has assets to serve as security. The most common asset type used by banks as security is the property, including residential, commercial and rural land. In some instances, you may be able to use vehicles or equipment to secure your loan. The value of your business could also serve as security.

Outlined below are typical assets which can be used as security held against property:

Care Homes
Data Centres
Factories
Fitness Centres/Gyms
Garages
Hotels
Industrial Estates
Land
Medical Practices/Health Centres
Mixed-use
Nightclubs
Offices
Public Houses
Restaurants
Retail Units
Shopping Centres
Shops
Warehouses

The most critical item for banks to assess is the affordability and viability of the tenant who they will rely on if the property is to be let. Typically, you will need your security asset to be worth at least 75 percent of the value of the property you are looking to buy. Largemortgageloans.com will review your position and present the strongest case possible. Our experience means that we understand how to navigate complex structures and how to enhance your profile.

The Benefits of Taking Out A Commercial Mortgage?

Many individuals like commercial property as an investment for the good solid yield/return they receive on their capital. The rental income is a good way of ensuring that you receive a return on your commercial investment. In some instances, renting out part of the building would allow you to receive an income while using part of the property yourself. The rental income accrued over a long period could cover the property purchase, and the cost of occupying your own office too. Commercial mortgages provide a certain amount of certainty. Regular and predictable costs make stabilising your cash flow easy. You can forgo uncertainty surrounding renting from a landlord, where costs can fluctuate and have more unpredictability. An additional benefit to being the property owner is that you also have control over how the building is maintained and its aesthetics. 

A key consideration is being able to forgo having to sign up for a lengthy commercial property lease. Nobody wants to be tied into a twenty-year leasehold when the future is uncertain. When you own a property, you have the flexibility of selling whenever you like.

Another silver lining to investing in a commercial mortgage is that interest of your commercial mortgage is tax-deductible. A small saving can accumulate over an extended period, culminating in a substantial cost-saving.

Lastly, but most importantly, one of the primary reasons for investing in commercial property is that if the property increases in value, your capital could too.

Does My Business Qualify?

To demonstrate that your business has a secure and stable trading history, lenders will want to see evidence of your business’s income, assets, profit and credit record. Different types of businesses are eligible to obtain a commercial mortgage, including limited companies, limited liability partnerships, trusts and offshore companies. In the case of a limited company, two years of accounts will typically be requested.

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Suppose the mortgage is to be used for residential rental properties. In that case, lenders may well want evidence of at least one years’ experience of you undertaking a similar project to showcase your experience. A new company looking to acquire a building is deemed as a higher-risk; therefore a mortgage would still be possible, but a higher deposit would be required, and the LTV (loan to value) ratio may be half of the property price.

Eligibility for Obtaining a Mortgage?

While proving that your business is eligible to qualify for a commercial mortgage, there will be a host of eligibility checks carried out to ensure that you are a strong candidate to borrow. Looking into your cash flow and your company’s financial health, including any debts you may owe, assets, and projected income will be assessed as part of the eligibility criteria. Whether you intend to occupy the building yourself solely or plan to rent it out to other businesses will also be considered when deciding on the agreement terms and how much you can borrow.

What Deposit is Required for a Commercial Mortgage?

Once you have proved that you are an eligible candidate for a commercial mortgage, a lender will typically request a deposit between 20 and 40 per cent of the mortgage to secure the loan. The deposit amount you can expect to pay can vary and is contingent on your business proposition and the type of commercial mortgage that you are taking out. Deposits are principally determined by the perceived loan risk, which is why commissioning mortgage advisers with experience in the commercial market is essential.

What Fees Are Typically Involved?

Outside of your mortgage loan, commercial finance will incur some additional fees. We have set out a list of typical costs that you can expect to include as part of your commercial investment.

  • Legal fees. You will need to appoint a solicitor to help you to navigate the legal process. Commercial mortgage applications are more sophisticated than residential mortgages; thus, legal fees tend to be higher. 
  • Valuation fees. A full valuation of the property will entail a more complex and detailed assessment than residential property valuation.
  • Arrangement fees. This fee is charged to cover administration and primarily the reserving of funds for fixed rate and discounted rate mortgages. These fees are typically 1-2% of the loan amount.

Mortgage Adviser Fees. Fees for appointing a mortgage adviser such as ourselves are typically charged up to 1% of the loan to value. When you consider that mortgage advisers do the negotiating on your behalf to ensure that you get the best deal, the fee seems relatively minor against the overall transaction. The final fee will be based on your pre-agreed terms.

Commercial Mortgages Calculator

We appreciate that at this stage, you are probably in the initial stages of finding out whether a commercial mortgage is a worthwhile pursuing. Use our commercial mortgages calculator to help you  gauge whether a commercial mortgage is a viable option.

Please note that these figures are ballpark figures as an indication of your expected repayment costs. Every solution we provide is completely bespoke, which is why talking to a trusted mortgage adviser in person will provide you with more clarity and insight on a relatively complex investment. 

How Many Years is a Commercial Mortgage?

Commercial mortgage terms typically range from 3 to 30 years. Loans which are paid across a longer period will affect the over cost of the mortgage loan because there it will include more monthly installments which will be charged interest.

How Much will Banks Lend for Commercial Property?

Banks’ mortgage loans typically start at £150,000, with no maximum limit. Providing that your business is eligible to qualify for a commercial mortgage and security requirements have been met, there is an infinite source of funds available. 

What Can a Commercial Re-mortgage be Used For?

Business remortgaging is used as a means of agreeing on new normally lower preferential terms on your existing commercial mortgage, or a way to release extra funds for use elsewhere. If you have been paying off your mortgage for a long time, banks will see your profile as less of a risk due to the lower loan to value; therefore, you may have the leverage to negotiate a lower rate. Savvy investors who have paid off a considerable portion of their loan will look to take advantage of their position and look into remortgage rates to achieve a better outcome, normally to raise funds to purchase another property.

However, before you decide whether remortgaging is the best option you should consider that if you choose to release money from your property as a lump sum, you could pay more throughout the course of repayments.

Finance your Commercial Real Estate with International Support

Commercial mortgages in the UK are available to overseas investors. Many international clients buy UK commercial property with the history of a stable government with a well regulated economy. Traditionally commercial property has been seen as a solid investment with yields between 5% and 8%.

Many global banks and insurance companies have a strong lending appetite for international clients looking to buy commercial real estate in the UK. Although our office is based in London, we work with international banks who can offer trade finance for loan requirements of £1 million and above. We work with lenders who feel comfortable providing solutions for clients whose wealth may not be completely transparent from the offset. In this kind of scenario, agreeing to review our client’s profile can often come down to our relationships.

Buying in a foreign currency is not an issue either, and we offer a foreign exchange (FX) specialist service to accommodate our international clients. Access to our third-party legal and tax advisers would prove particularly fruitful in this scenario. Appointing a commercial mortgage advisor with international connections and experience in working across multiple jurisdictions is pivotal because taking out a overseas mortgage application has lots of moving parts. We present you with one package in order to serve your needs effectively. 

Why Choose Largemortgageloans.com?

  • LML negotiates the best possible mortgage terms. We are unparalleled in navigating a myriad of lenders and private banks.
  • We are a member of the NACFB
  • We provide creative solutions for sophisticated financial profiles.
  • Clients have our undivided attention from inception to completion. We spend time with clients and listen carefully so that we can understand their requirements.
  • The lines of communication are always open. We are on hand to assist clients in assisting individuals living in international time zones.
  • Information is a key component of the Largemortgageloans.com philosophy. We update individuals regularly on the state of the UK property and mortgage markets. Our UK financial services professionals, based in London, set up to build a team of property finance advisers in 2003 to facilitate commercial borrowing requirements of high net worth individuals. Since then, we have been exposed to a range of scenarios, and as a result, we are adept at problem-solving.
  • Our service offering is multi-faceted. Our experts are agile and have a breadth of expertise. We provide advice on mortgages, remortgages, raising traditional development funding and bridging loans  to support commercial finance development.
  • We approach mortgages from a long-term business perspective, thus attracting investors looking for a property portfolio.
  • Discretion is of the utmost importance to us. We will not contact any third parties before seeking clients approval first.
  • We work with multiple jurisdictions, thus enabling us to provide flexible solutions for clients’ living overseas.

Read our commercial mortgages case studies:

Recently set up a new business? Don’t let that stop you getting a mortgage!
Multi-million-pound property development loan approved, thanks to our specialist team
£2.7 million Commercial Bridging Finance deal
Bespoke £7.32 million Buy to Let Portfolio remortgage

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