Commercial Mortgages

Frequently Asked Questions

What is a Commercial mortgage?

A commercial mortgage is a loan that is secured against a commercial property. The property’s main usage must be used for the running/operating of a business or renting out to a third-party business.

What is a Commercial mortgage used for?

To purchase business premises. Purchasing your own business premises puts you in control of the premises. Any improvements can add value. Plus you won’t be subject to sudden rent rises.

How does a Commercial mortgage work?

Similar to residential mortgages Commercial mortgages are usually paid monthly and cover the money borrowed and interest charges.
The size of the loan in likely to be up to 75% of the property value.
Commercial mortgages usually have a higher interest rate, than residential mortgages, this is because they are generally considered higher risk. You may be eligible for better rates if you are able to put more deposit down.
The mortgage term is typically between 3 and 25 years, but some can be longer to around 30 years.
In order to be accepted the lender will want to make sure you can afford the mortgage. They may need filed accounts. You may also be looked at more favourably if you have had previous experience i.e. owning or running a commercial property in the past. Or a business plan/projected income for new projects. Lenders may also need a personal guarantee or debenture.

Can you get a Commercial mortgage with another person or as a limited company?

Yes.

Are there different types of Commercial mortgage?

There are different types of secured loans for Commercial properties including:
Interest only: where the interest is the only part of the loan being repaid, you would have to make provision to pay off the capital by the end of the mortgage.
Fixed rate: where the sum repaid is at a fixed interest rate for a period of time, usually between 2 and 5 years. This can be useful to manage your money. After that the interest reverts to the lenders standard variable rate for the rest of the mortgage unless you complete a new mortgage deal.
Variable rate: where the monthly interest base rate is set by the lender and adjusted monthly or annually meaning it could go up or down.
Tracker rate: where the interest rate tracks the Bank of England`s base rate meaning it could go up or down.
Discounted rate: this is a form of variable mortgage, where the interest rate is set just below the lenders standard variable rate, for a set period of time.

Do I need experience?

Not always, Lenders will look at a number of factors.

Can I get a Commercial mortgage as a first-time buyer?

It may be possible depending on your circumstances.

If I already have a Commercial mortgage, Can I Re-Finance?

Yes, depending on the circumstances.

How much does a Commercial mortgage cost?

Typically, the costs include:
Broker Fees
Product fees, charged by the lender
Deposit
Valuation Fee, these can vary
Solicitors/Conveyancers Fees, these can vary

Do I need a deposit?

Yes, you will be more likely to secure a commercial mortgage if you have at least a 25% deposit, although lenders can request up to 45% of the property’s value.

Do I pay monthly?

Yes, the amount paid is based on the amount borrowed, interest rate, type of mortgage and term.

Can I get a Commercial mortgage if I have Adverse Credit?Adverse credit, also known as bad credit, does not necessarily mean you are unable to get a mortgage. Every situation is unique and we can advise accordingly.

How can I check my Credit Report?

Use this link for Check My File Credit Report
https://www.checkmyfile.partners/694W2WN/2CTPL/

Check my file offers a 30-day free trial which is £14.99 per month, thereafter, and can be cancelled at any time.

What should I do next?

When you are ready, please give us a call. One of our friendly advisers will gather information about your enquiry and offer advice accordingly. We offer FREE initial consultations.

Case Study Example

Mr and Mrs X ran a small accountancy firm from a commercial property for 5 years. The owner approached them as he wanted to sell the property and offered them first chance to buy it.

The asking price was £550,000.

Instead of paying rent every month they decided to buy it.

They had a 35% deposit.

After advice, they chose a 20 year repayment commercial mortgage which was fixed for 5 years at 7.79%.

This deal had an arrangement fee of 2% (which they added to the loan) and a valuation fee of £974. The payments were £2,249 per month.

Once the fixed rate ends the mortgage will revert to the Lenders Standard Variable rate, currently 8.55% which would mean the payment would then be £2547 per month. They could, however, remortgage to a new deal.

This example is based on figures from a high street lender on 10/04/2024 and is for illustrative purposes only.

Your property may be repossessed if you do not keep up repayments in line with the lenders schedule. Think carefully before securing debt against any property.