Commercial Mortgages
If you’re considering investing in property for business reasons, whether it’s to grow your existing company or to rent out to others, you may need a commercial mortgage.
There may come a time in your company’s life that investing in new premises is a must, and it is then that you will likely need financing support in the form of a commercial property loan. Whether you are operating from rented premises and want the greater security that buying your own premises can bring; looking for a new, bigger base that can support your company’s expansion; or even the opportunity to rent premises to others, you will need a business mortgage.
What are commercial mortgages?
A commercial mortgage is a loan that’s secured against premises that are not residential. They can be used to purchase buildings for your own company or to rent out to others, either on a residential or a commercial basis (known as a residential or commercial buy to let mortgage). As with residential mortgages they can come with either variable or fixed interest rates.
However, commercial mortgages differ, as they are not regulated by the Financial Conduct Authority (FCA) and generally have higher interest rates. Although lower rates can sometimes be acquired by offering a higher deposit, this will depend on the individual lender, how much you want to borrow and your company’s financial situation. It is worth bearing in mind that the interest on a business’s commercial mortgage is tax-deductible.
There can also be extra costs associated with a business mortgage, although the specifics of this will vary depending on the lender. Due to these added expenses, it can be considered
uneconomical to take a mortgage for less than £80,000 and some lenders may set minimum amounts at around £100,000.
A commercial property mortgage can be taken out and used for a range of properties, including buy-to-let investment properties (whether residential or business), warehouses, factories, owner-occupied businesses, such as retail premises or offices, pubs, hotels, farms, land or professional practices.
As a commercial mortgage broker, we work with the best UK alternative finance providers and have specialist advisors who can talk through the costings that affect you, business mortgage interest rates and the options that best suit your needs.
How do commercial mortgages work?
As with residential mortgages, commercial mortgages operate by securing a loan against the value of your premises – with a loan to value (LTV) ratio of up to 75%.
This means then that they often require a deposit of at least 25%, although some lenders will accept this security in the form of equity from another property or a charge over other assets, such as insurance or shares.
They can often be taken out for a term of up to 30 years and can be used on freehold and leasehold properties. However, in the latter case, this is generally arranged only if the lease is more than 70 years long and additional security may be needed.
residential mortgages, commercial mortgages operate by securing a loan against the value of your premises – with a loan to value (LTV) ratio of up to 75%.
This means then that they often require a deposit of at least 25%, although some lenders will accept this security in the form of equity from another property or a charge over other assets, such as insurance or shares.
They can often be taken out for a term of up to 30 years and can be used on freehold and leasehold properties. However, in the latter case, this is generally arranged only if the lease is more than 70 years long and additional security may be needed.
The different types of commercial mortgages
Just like when buying your own home, there are various types of mortgages that can be taken out for business purposes. The type of business mortgage available to you will depend on the reason you need it:
Owner-occupied – this is ideal when you want to buy the premises from where you are currently working or when you want to buy new premises from which to operate.
Commercial buy to let mortgage – this option is available if you want to buy a building in order to rent it out B2B, i.e. to another company/companies. As it can be difficult to let commercial properties, lenders may require you to meet a higher level of factors in order for you to qualify.
Residential buy to let mortgage – this mortgage is offered for those who want to buy a building in order to rent it out to people to live in. This is often used by professional landlords or buy to let companies who operate in the same way.