Commercial Mortgages

What is a Commercial Mortgage?

A commercial mortgage or a business mortgage is a special type of mortgage loan which is secured against commercial property like office buildings, shopping centers, industrial warehouses, or apartment complexes.

Commercial mortgages are usually for business owners who want to purchase property or land for commercial use or redevelopment. Sometimes business owners with an existing commercial property can take out a commercial mortgage to refinance their property. 

 

 

How Will I Qualify for a Commercial Mortgage?

Anyone can apply for a commercial mortgage, but the lender will decide whether or not to accept their application. Usually, enders base their decision to offer a commercial mortgage on the following criteria:

  • Your income and assets.
  • Any rental income you may have.
  • Proof of 20-40% deposit
  • If you own a business, its projected income.
  • Your business earnings and expenses.
  • Any existing debts you may have. 

What are the types of Commercial Mortgages?

Commercial Mortgages can be classified into 2 types:

Commercial Buy to Let mortgages: This type of commercial mortgage is taken out so that the owner can rent out the property to other businesses.  

Owner-occupier mortgages: This type of commercial mortgage is used to buy the premises where you will run your own business.

An interesting point to note is that, since a commercial mortgage is defined as a mortgage that is  secured on property which is not your home, buy to let mortgages are a special type of commercial mortgage.

 

How Can I Apply for a Commercial Mortgage?

You can apply for a Commercial Mortgage through a mortgage broker or you can go directly to a lender.

Sometimes, better interest rates can be available if you go through a broker.

If you decide to find a lender yourself, make sure you do proper research to find a lender that you like.

Here are the stages of making a commercial mortgage application:

1.    Make sure you have all the documents needed for your loan application, ie. ID, payslips, bank statements, business plans,  etc

2.   Complete the commercial mortgage application form, giving as much information as you can and being truthful about it. 

3.       The lender will arrange for a property valuation for which you will have to pay. 

4.   You will have to hire a solicitor to handle the legal end of the mortgage application. Sometimes, the lender provide a solicitor as well. 

5.       All legal due diligence will be carried out by the lender’s solicitors

6.       If the lender and the solicitors are all satisfied with your information and financial circumstances, then you will be given the Commercial Mortgage Offer. 

When you gather your documents, make sure you have the following:

  •  3 months’ worth of bank statements.
  • Your Identity documents.
  • Proof of address.
  • The last 3 years’ of trading figures.
  • The tenancy agreements of lease documents for your business premises.
  • You may have to give the lender a business plan. This will be help the lender to better assess your application. 

How Much Will a Commercial Mortgage Cost?

Taking out a commercial mortgage will involve some cost, mainly in the form of fees. Here are a few of the fees that you may have to pay: 

Arrangement fee: This fee is set by the lender  and is usually added on to the loan after your application has been approved. Typically, arrangement fees are 1% -2% of the loan amount, although they vary from lender to lender.

Valuation Fee: This is the fee you will have to pay for your valuation, when a valuation surveyor will visit the property and determine how much it is worth.  They will then summarise their findings by writing a valuation report to the lender. Your commercial loan amount will depend on this valuation report. Commercial valuation fees start from around £500, and can vary. 

Legal Fees: In case of commercial mortgages, you will have to pay both your own and the lender’s solicitor’s fees. 

Broker fees: A broker will give you expert advice according to your individual situation and can also make the mortgage application to the lender on your behalf. Their service is usually charged at up to 1% of the loan value.
However, here at Ever North Limited, we do not charge any broker fees. Our advice is COMPLETELY FREE!

I Don't Want a Commercial Mortgage, Do I Have Another Option?

Of course you have other options! There are a few alternatives to Commercial Mortgages: 

  • Bridging Loans: These are short-term financial solutions that can ‘bridge’ the gap between when your funds come in and when you can pay for the purchase of your commercial property.

  • Personal Loans: These are loans where you can borrow a fixed sum of money and pay it back with interest over a set period of time. You do not need to be a home owner or a business owner to be eligible. 

  • Short-term Loans: This type of loan is actually a line of credit which is given against a business.  It is generally taken out to solve short-term cash flow problems or when rapid cash injection is required for business capital. Short term loans usually have to be paid back with interest within a year.