commercial mortgages UK

 

 

 

A commercial mortgage in the UK is a type of loan specifically designed for businesses looking to purchase or refinance commercial property. Here’s a general overview:

1. Purpose

• Purchase: To buy commercial properties such as office buildings, warehouses, shops, or any property that will be used for business purposes.
• Refinance: To refinance an existing commercial mortgage to secure better rates or release equity.
• Development: To fund property development projects, including the construction of new commercial buildings.

2. Types of Properties

• Owner-Occupied: Where the business operates from the property.
• Commercial Investment: Where the property is purchased for rental income or capital growth.
• Mixed-Use: Properties that have both commercial and residential uses.

3. Interest Rates

• Fixed-Rate: The interest rate remains constant for a set period, providing certainty in payments.
• Variable-Rate: The interest rate fluctuates with market conditions, often tied to the Bank of England base rate or LIBOR.

4. Loan-to-Value (LTV)

• LTV ratios typically range from 65% to 75%, depending on the lender, the borrower's credit profile, and the property type. This means the borrower must provide a deposit or equity ranging from 25% to 35%.

5. Repayment Terms

• Term Length: Generally ranges from 5 to 25 years, depending on the loan size and property type.
• Repayment Types: Can be on an interest-only basis, repayment basis (capital and interest), or a combination.

6. Eligibility Criteria

• Business Plan: A solid business plan demonstrating the ability to generate income from the property.
• Credit History: Good credit history, although some lenders may consider adverse credit depending on other factors.
• Income Evidence: Proof of the business's ability to meet mortgage repayments, typically through financial statements.
• Deposit: The ability to provide a significant deposit or equity in the property.

7. Costs Involved

• Arrangement Fees: Typically 1% to 2% of the loan amount.
• Valuation Fees: A fee for the property's valuation, often required by the lender.
• Legal Fees: The borrower must cover the cost of their own legal fees and sometimes the lender’s as well.
• Early Repayment Charges: May apply if you pay off the mortgage early.

8. Lenders

• Major banks, building societies, and specialist commercial mortgage lenders offer these loans. Examples include Barclays, HSBC, Lloyds, and specialist brokers like Aldermore and Shawbrook.

9. Brokers

• Many businesses use brokers to navigate the complex commercial mortgage market. Brokers can help find the best deals and navigate the application process.

10. Application Process

• Pre-Assessment: Initial discussions with a broker or lender to determine eligibility.
• Formal Application: Submission of the application along with detailed financial documents.
• Valuation and Underwriting: The property is valued, and the lender assesses the business’s ability to repay the loan.
• Offer and Completion: If approved, the lender issues a mortgage offer, and after legal formalities, the mortgage completes.

Commercial mortgages are tailored to meet the specific needs of businesses, and terms can vary significantly depending on the lender and the borrower's circumstances. It's advisable to consult with a mortgage advisor or broker to find the best deal.