A Beginner’s Guide to Commercial Mortgages
There are quite significant differences between standard domestic mortgages and ones for a commercial property. For a start, while many home mortgages are suitable for a wide range of customers, commercial products tend to need a bespoke solution and are generally more complicated.
That means you won’t find any online commercial mortgage sites that offer instant decisions when you put in your details.
What is a Commercial Mortgage?
The purpose of the commercial mortgage is essentially the same as the domestic one. The mortgage is taken out, with the business property as collateral. This can be for any property including an office, retail store or even something like a garage.
Commercial mortgages can vary in length depending on the deal that is offered by the property owner. This is normally anything from between 3 and 25 years.
There are no set rates when it comes to commercial mortgages mainly because each one is different and a lot will depend on the risk level involved. In general, however, the bigger the loan and the lower the risk, the lower rate you might pay.
Types of Commercial Mortgage
There are generally two different types of commercial mortgage. The first is owner/occupier which essentially means you will be running all or part your business from the property. The other type of commercial mortgage focuses on investment or buy to let properties, situations where the mortgage holder is not using the property themselves. Each type will have certain conditions associated with them.
Disadvantages and Benefits of Commercial Mortgages
While buy to let and investment mortgages have their own pros and cons, if you’re buying an office or store for your business there are certain things you need to seriously consider.
The first is that switching to a commercial mortgage can be beneficial by protecting you from sudden rent rises by the property owner.
You can also, if your lender agrees, sublet part of the property to another business in order to offset your costs.
The interest you are going to pay on the loan is tax deductible and you can decorate and improve the property without needing permission
There are some disadvantages, especially if you are a start-up or fairly new business. The first is that you normally have to find a fairly hefty deposit to obtain the commercial mortgage in the first place. You also have to take control of the maintenance of the property and, if you do suddenly need to move because your business is growing or has folded, it can be difficult to do so because of the financial commitment.
How Are You Assessed For a Commercial Mortgage?
All mortgages for commercial properties are looked at as individual cases by lenders. For an owner/occupier mortgage, they will look closely at your business books as well as what you are projected to earn in the next year or so. This can be quite invasive but the lender will be keen to ensure that you are able to afford the repayments and will always do the due diligence. If you are a buy to let landlord, the lender will need to look at your current portfolio and examine your rental agreements. They will also look for a minimum term for the mortgage, usually 3 years, but this can vary depending on your provider.
Finding a Commercial Mortgage
This is the hardest part for many businesses. Banks aren’t the best places to start as their rates tend to be higher, at least not since the financial crash. That’s why it is sensible to use the services of a commercial mortgage broker who knows the market and will be able to negotiate a better deal for you.
At Chilvester Financial, we work with businesses and individuals to help them get the best commercial mortgage they can. Because we have whole-of-market access, we can usually find deals you wouldn’t see anywhere else, and be approved when you might not otherwise. If you would like to know more about commercial mortgages or find out what we could do for you, just get in touch with our team today to arrange your consultation.