Commercial mortgages are used for property purchases that are not the borrower’s main residence, and is available for buy-to-let residential property or business properties. If you are considering applying for a commercial mortgage, there are a few things that you need to be aware of:
The basics
Commercial mortgage finance is available for loans over £25,000. If a business needs a loan for a lesser amount, then a bank loan or overdraft may be a better option. Not all lenders have a maximum limit to the loan, but a borrower needs be present evidence that they can afford the repayments. Generally, most commercial mortgages will be under £10m.
Normally a commercial mortgage will be for 70% of the purchase price of property. You will need access to funds for the 30% deposit. Some lenders will consider lending more than 70%.
You can choose to have a variable interest rate or one that is fixed to a percentage above the bank rate. Interest linked to the bank rate may initially be cheaper than a fixed rate, but it could rise if the Bank of England Base Rate goes up. A fixed rate is set for a period of up to 10 years. Some lenders will only offer a bank linked rate for mortgages over £100,000.
The actual interest paid will be based on a risk assessment by a lending manager.
The uses for commercial mortgages
Commercial mortgages are diverse and flexible. Buy-to-let landlords purchasing residential property to rent out can use commercial mortgage finance to buy property. Commercial landlords need mortgages to buy office space, shops, workshops and other business premises they rent to commercial tenants.
There are also mixed-use properties such as shops above flats and pubs that contain both commercial and residential areas.
A business can use a commercial mortgage to buy premises for their business instead of renting. A commercial mortgage can also be used to remortgage existing property.
The application process
To apply for commercial mortgage, you will need to show that you are a sole trader, partner, director or owner of a business and are over 18 years old.
You will need to provide a profile of your business, including the management structure and track record of all directors and partners in a company. You will need to present financial information, which includes management accounts for a number of years, cash flow forecasts and details of assets and liabilities of the company.
If the business is purchasing the property to rent out, evidence of expected rents will be required.
The property will usually act as security, and may be subject to a detailed valuation report on its condition and market value.
Where to apply
For more help and information on commercial mortgage finance, talk to Ascot Mortgages. We can find the best commercial mortgage deal for your business. What’s more, the team at Ascot can also assist you with the commercial mortgage application process, finding the best deal for you.
