How does buy-to-let differ from commercial mortgages

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Many buy-to-let landlords want to diversify their property portfolio and are considering investing in commercial property. Landlords investing in commercial property for the first time, however, need to be aware of the difference between buy-to-let mortgages and commercial mortgages – something looked into by in October 2017.

Buy-to-let mortgages are for residential property only. Commercial mortgages are for nonresidential properties but can be used for semi-commercial property that has mixed commercial and accommodation areas. These include shops with flats above them and pubs and hotels with accommodation.

Both commercial and buy-to-let mortgages are secured with property and charge monthly payments that include interest spread over a number of years. The interest rates for commercial mortgages are generally higher than for buy-to-let mortgages.

The amount you can borrow for purchasing commercial property is more complex, and is dependent on the rental income, the type of tenant and the length of remaining on the lease.

Many buy-to-let lenders have a fixed set of criteria on which they base lending decisions. Commercial mortgage lenders tend to be more flexible, taking a case-by-case approach, and looking in detail at each loan application before making a loan decision.

In recent years, landlords have had cuts to tax relief on their buy-to-let mortgage interest payments, but these have not affected commercial mortgages, so there are some tax advantages of investing in commercial property.

Experienced mortgage brokers will be able to assist landlords by finding the most suitable mortgage deals to buy commercial property.

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