Commercial mortgage finance – some frequently asked questions

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Question

Commercial mortgages are loans for property that is not your residence. These include buy-to-let property and business premises. At Ascot Mortgages, we can find the best commercial mortgage finance deals to purchase commercial property,

How much can be borrowed?

Some mortgage lenders have a £50,000 minimum amount that they will lend, others around £75,000.

Lenders vary on the maximum amount that can be borrowed. Some have a limit of £2m but it is possible to borrow tens of millions of pounds.

Most lenders will provide mortgages for around 70% of the value of the property being purchased, though some will go as high as 80% of the property’s value.

What security is needed?

Normally, the property being bought is used as security for the loan, which means that it will be at risk if the repayments are not made. Some lenders will consider business assets as security.

How long does a commercial mortgage last?

A commercial mortgage can last from 3 to 25 years. If finance is needed for less than 3 years, a bridging loan is appropriate.

What are the interest rates for commercial mortgage finance?

Unlike residential mortgages for individuals, there is no fixed interest rate for commercial mortgage finance. The mortgage application is examined by a lending manager who will assess the loan risk. A low-risk loan will cost less interest.

Most commercial mortgages are a variable rate set at a percentage above the bank LIBOR rate. In a similar manner to a standard residential tracker mortgage, the interest will go up and down whenever the LIBOR rate changes.

Some lenders can provide a fixed-rate commercial mortgage, usually for loans of £500,000 or less.

What other fees are charged?

An arrangement fee will normally be added to the loan. Some lenders charge a commitment fee that’s non-refundable if the borrower pulls out of the mortgage deal.

A valuer is needed to make a report on the property, and the borrower pays his fees. There are also legal fees for both the lender and the borrower, which are charged to the borrower. The mortgage broker will also charge a fee.

What documents are required?

To support a commercial mortgage application, a number of documents are necessary. These are needed to prove that the business can afford the mortgage repayments.

A business must provide at least two years of audited accounts. Proof of identity and address for people responsible for the payment of the mortgage are required. Any assets owned by the company must be listed. If the mortgage is for a buy-to-let property, details of any existing tenants and leases must be provided, or an accurate evaluation of rent levels for the property if currently empty.

Where do you get the best commercial mortgage finance deals?

A commercial mortgage broker is the best place to find mortgage deals, and at Ascot Mortgages, we have access to a wide range of lenders and mortgage products. Contact us to discuss your borrowing requirements.

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