If you’re looking for finance to purchase, refinance, or develop commercial property, you’ll require a commercial mortgage. Here’s a guide to help you make informed financial decisions regarding your commercial mortgage.
What is a commercial mortgage?
A commercial mortgage is a loan secured against a property you don’t live in, either your business premises or one you rent out. Commercial mortgages apply to a wide range of properties, including:
- Offices
- Shops and retail spaces
- Industrial units
- Factories and warehouses
- Hotels, spas, pubs and other leisure properties
- Mixed-use developments
You can also use a commercial mortgage (a commercial land mortgage or development finance) to buy land for commercial use, such as building residential or commercial properties.
Types of commercial mortgages
There are two main types of commercial mortgages:
- Owner-occupied mortgages: Used to buy a property from which your business will operate.
- Commercial investment mortgages: Used to purchase property you intend to rent.
What are the criteria for a commercial mortgage?
Lenders assess various factors before approving a commercial mortgage, including:
- Loan-to-value (LTV): Typically, lenders offer up to 70-75% of the property’s value.
- Business financials: Your company’s financial health and ability to repay the loan.
- Credit history: Your personal and business credit histories.
- Property type and location: Some property types and locations are considered higher risk than others.
- Rental income potential: If the property is an investment, expected rental income is crucial.
- Legal standing: Lenders want assurance that your business is in good legal standing.
Commercial mortgage rates and terms
The rates and terms for commercial mortgages are as follows:
- Interest rates: Commercial mortgages can be on a fixed or variable rate basis, and the rates are typically higher than those for residential mortgages. However, as they are secured against property, commercial mortgages are often at better interest rates than regular business loans.
- Loan terms: A commercial mortgage usually lasts from 5 to 25 years.
- Repayment types: Commercial mortgages can be capital repayment (paying interest and capital) or interest-only (paying just interest).
How to apply for a commercial mortgage
Before beginning your search for a commercial mortgage, do the following:
- Assess your needs: Determine how much funding you require and what type of mortgage suits your transaction.
- Prepare financial documents: Lenders will require up-to-date accounts, financial forecasts and bank statements
Find the right lender
Finding a commercial mortgage can take time and detailed research. Using a finance broker can simplify the process by:
- Assessing the market to identify the most suitable lenders
- Handling negotiations on your behalf.
- Guiding you through paperwork and legal requirements.
- Increasing approval chances by presenting your application professionally.
If you’d like to know more about commercial mortgages or need help securing one, get in touch. Our brokers are experts in securing property finance and will help you get the right deal for your needs.
