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What is a commercial mortgage?

Written by Posted On Sunday, 03 March 2019 09:01
commercial mortgage commercial mortgage

Any loan secured on a property which is not your residence is a commercial mortgage. Usually they are taken out on business premises. Each commercial mortgage is assessed individually as different properties come with different merits and risks, and must therefore be priced accordingly.

When are commercial mortgages used?

When business loans finish, commercial mortgages generally take their place. Business loans are unsecured up to £25,000, but for anything over that amount lenders will require some form of security in order to reduce the potential risks to themselves. The administrative and legal costs of taking security on commercial property means that borrowing under £50,000 is not considered viable, with some lenders having a minimum borrowing amount of £75,000.

What security can be offered?

For most lenders, the only security required will be the property you are purchasing. Generally this is 70% of the property's value, and a cash deposit for the value of the purchase price will be asked for. Additional security can be offered in lieu of cash if you do not have the money. This may be other property you have a lot of equity in, or else other assets like shares or insurance policies.

How long are commercial mortgages for?

Commercial loans vary in length from anywhere from three years, up to twenty-five years. Shorter term alternatives are available, though these are typically referred to as bridging loans or property developments loans. These can be taken out for a few days or weeks up to a year, though some bridging loan lenders will agree to up to 24 months.

Rates

Universal, pre-determined rates for commercial loans simply do not exist in the same way that they do for personal loans. Each application is looked at individually by a lending manager, who will carefully assess the potential risks of loaning money to the case in question.

Any person wishing to take out a commercial mortgage will need to provide a lot of information about the property to the lender to help them make their decision. The rates will vary depending upon how risky the lender has judged the investment to be. Of course large, low risk loans will get the best rates. Most commercial mortgage lenders will have a risk profile they measure each case against, so if an application falls outside this profile, they will not take on the case.

How much can be borrowed?

A commercial mortgage for around 70% can be found for any owner occupied property. For investments, the amount that can be borrowed will be determined by the rental income, but will not be above 65% of the purchase price. Business which include stock and goodwill will have less available to borrow.

Fees

Arrangement fees will typically be added once the loan has finished. The smaller the loan, the higher the arrangement fee rates.

A valuation fee will need to be paid, as (due to the fact that commercial properties can be much more varied than residential properties) a valuer will need to visit your property and complete a report on it. The price of this valuation is not pre-determined, but for a straight-forward case you can expect to pay £500.

Legal fees will need to be paid, both your own and your lender's. Once again, these rates vary, but £500 on behalf of each party is typical. Using different partners in the same law firm as your lender can save you some time and money in this area.

If you would like to know more about commercial mortgages and how they could benefit you, contact the experts at Glen Hawk

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