Commercial Mortgages

Obtaining a commercial or business mortgage is based on the ability of your business, or the rental income from a tenant to service the debt. You will need to be confident that your business can service the debt, and that you will be in a position that you can prove this beyond doubt to any potential lender. You will need to provide a detailed business plan together with historical accounts, which demonstrate that you can make the repayments. A professional valuation will be required by the lender before the commercial mortgage offer will be made.

In this market you should not have any trouble finding a commercial mortgage through the High street lenders, providing you have a clean credit profile, although you may also have to move your business banking facilities to the new provider, if you’re going to achieve the best terms.

You may have the option of going to a specialist lender who will not require your business banking, and they may offer interest-only payment terms and loans with lower deposit requirements, but the terms may not be as attractive.

This will depend on the type of commercial property that you are looking to purchase, and whether it is for your business to occupy or if you intend to lease the property to a suitable tenant.

If the property is for your own use you are generally able to find a mortgage between 70-75% loan-to-value (LTV), provided you can find the deposit from your own resources.  You will be subject to a rigorous affordability assessment too, which means the amount you can borrow will be dictated by the deposit amount you are able to provide upfront and in addition to satisfying the affordability criteria.

It’s a little different when it comes to a commercial investment mortgage. Here, the amount you will be able to borrow will depend on the expected rental income generated by the investment, but even so the mortgage typically won’t be able to exceed 70% of the initial purchase price. In some cases, you may be able to find a lender who will accept a lower deposit, but you’ll be required to provide significant collateral to back this up.

Generally speaking, these mortgages are not regulated, however there are some exceptions where they are regulated (such as if you were buying a property to live in as well as run a business from, in which case the waters become slightly muddied), but this is the exception rather than the rule. This makes it even more important to seek advice from your Broker or your Solicitor before you start the process.

Yes, it is perfectly possible to refinance this kind of mortgage, in that you’ll pay off your existing loan by replacing it with a new one. This may be to free up cash or secure a better interest rate, but while it’s possible, it doesn’t mean it’ll be easy as it could be an expensive process as you may be hit with early repayment charges and new booking fees, for example, so make sure to weigh up the pros and cons of refinancing.

Occasionally, but not very easily, and you’ll usually have to stump up something significant as security (such as another property or other assets).

Yes. One of the advantages of commercial mortgages, compared to alternative routes, is that the mortgage interest is tax deductible.

Interest rates are generally down to risk, and the terms of the mortgage itself. With mortgages for business, the ability of a borrower to make repayments is dependent on the performance of the business, and if it doesn’t perform, the bank will have limited assets from which to make its money back. It’s also harder to assess the creditworthiness of a business, particularly a new one, and terms tend to be a lot shorter, too.

A commercial investment mortgage is a buy-to-let mortgage for commercial tenants, with only the terminology being different. In traditional buy-to-let, a private landlord rents out a property to residential tenants, whereas under a commercial arrangement, the property is let to a commercial enterprise. Nonetheless, the term “buy-to-let commercial mortgage” is rarely used, as it’s simply thought of as a commercial investment loan.

Not generally. When giving a commercial mortgage, lenders want to see their money being fully repaid – both capital and interest. However, with investment mortgages, lenders do understand the tax position of their customer, so in these cases they will help by not insisting on capital repayment so long as the LTV is below a certain amount (often 60%), allowing the borrower to pay interest only.

A lender will want to see proof that the proposed loan would be affordable to the borrower.  To do this, the lender will normally ask to see the last three years’ accounts to prove this. If your business has been trading for less than three years, you will not be about to show the accounts needed.  However, exceptions can be made, and a professional standard business plan would be essential in arguing the case for loans where affordability is not readily apparent. This would undoubtably impact on the size of the deposit that the lender would require, to lower the level of the perceived risk.