If you purchase property for business purposes, you will probably need commercial mortgage finance.
What is commercial mortgage finance used for?
Commercial mortgages are available for buy-to-let property, shops, offices, workshops, warehouses and other premises that are used by a business. There is also semi-commercial property which has a mix of residential and commercial uses. These include shops with flats above them, pubs and hotels.
A commercial mortgage can also be used for remortgaging in order to release money tied up in existing property.
How much will commercial mortgages lend?
The majority of commercial mortgages require a larger deposit than for a standard mortgage. Commercial mortgage finance will usually provide 65% to 80% of the purchase cost of property. Some lenders will consider loans at a higher loan-to-value rate.
Most lenders will not consider applications for mortgages under £25,000. In theory, there is no maximum amount that you can borrow, but obviously a borrower needs to be able to afford the repayments.
How long is a commercial mortgage?
A commercial mortgage can be for between 2-30 years. The shorter the loan, the less the mortgage will cost you overall.
The building being purchased will usually be required for security for the loan. A lender could ask for additional forms of security.
How much is the interest?
Unlike standard mortgages, there is no fixed rate for commercial mortgages. A lending manager assesses each loan application and fixes a rate that is dependent on how risky he/she thinks the loan is. Large loans considered low risk will have the lowest interest rates.
What about fees?
There will normally be an arrangement fee. This can be paid when the loan is complete. Some lenders will also charge a commitment fee which is paid once a formal application has started. This arrangement fee is nonrefundable.
A valuer needs to write a detailed report on the building. The borrower will usually be required to pay the valuer’s fees, which will be around £500.
There will also be legal fee to pay, which are for both the lender’s and the borrower’s work. If you use a broker to arrange a commercial mortgage, they could charge a fee too.
How do I apply for a commercial mortgage finance?
Once you have an offer accepted for property, you can apply for a commercial mortgage. You can apply direct to a lender, but you may not get the best deal this way.
As a result of the many options available with commercial mortgage finance, it is recommended that you use a mortgage broker who has the contacts and knowledge to find the best deals. A broker can also help you with the loan application process.
You will need documentation, including business accounts to prove that you can afford the mortgage repayments, but a mortgage broker can assist you in presenting the correct documentation to support your application.
At Ascot Mortgages, we are experienced experts in commercial mortgage finance. Contact us discuss your borrowing needs.