A guide to commercial mortgages

Tuesday, 8th January, 2019

There’s never a shortage of debate around residential mortgages and buy to let mortgages. Even equity release mortgages are currently basking in the sunlight after the amount of equity released from the properties of UK homeowners hit over £1bn. However, one type of mortgage that often gets overlooked is the commercial mortgage.

According to the Federation of Small Businesses, there were 5.7 million private sector businesses at the start of 2017 – up 197,000 from 2017 and 2.2 million more than in 2000.

It stands to reason, then, that whilst the process of applying for a commercial mortgage doesn’t get as much airtime as residential mortgages (there are less UK businesses than UK properties, after all), commercial mortgage applications are on the up.

As a mortgage broker in Guildford, an area where there is a high concentration of business owners, we have seen an increase in the number of people interested in getting a commercial mortgage over the years. Yet when comparing applicants’ knowledge of commercial mortgages with residential mortgages, there are huge gaps.

So, here’s our brief guide to the commercial mortgage in the hope that it provides you with enough information to get you started.

1. What is a commercial mortgage?

Commercial mortgages are used to buy land or property for a business. Equally, a commercial mortgage can be used to expand an existing business or for property development. It’s generally a long-term loan spanning 10 to 20 years and lenders are generally willing to lend up to 70% of the total value of the property, although they can consider lending more where they are happy with the overall circumstances. The remaining funds are expected to come from the business.

2. What are the benefits of taking out a commercial mortgage?

If you run a business and want to protect yourself against escalating rental costs, then owning a business premises is a great way of controlling this particular overhead. Also, just like residential properties, commercial property values can increase, the equity of which can give you an added buffer in fallow periods or when cash flow is poor.

3. Are commercial mortgages easy to get?

There are many lenders offering commercial mortgages. The trick is finding the one that works for you and your business. As a commercial mortgage specialist, Complete Mortgages can help you identify a lender from a wide pool of commercial mortgage lenders that we work with and that can support your short and long term objectives.

4. What about commercial mortgage rates?

They are typically higher than residential mortgage rates and tend to vary. A good mortgage broker will help you identify a commercial mortgage that best suits your needs.

5. Is my credit rating still important in order to get a business mortgage?

Yes, it is important. However, rather than just looking at your personal credit rating, a lender will also be able to get a good indication of whether or not you’re a ‘safe bet’ by looking at your business as a whole, which is a good thing.

6. Is there anything I need to be aware of?

The commercial mortgage journey is arguably less predictable than that of a residential mortgage. Residential mortgages are quite linear; you need somewhere to live and once you’re on the property ladder, the chances are you won’t get off. Businesses are different. Many grow, many fail and sometimes businesses owners simply decide to go and do something entirely different. As a result, you need to be aware of the financial commitments of a commercial mortgage and have a good idea of what you’re looking to achieve before taking out a commercial mortgage.

This is only a brief guide to commercial mortgages. If you’re interested in finding out more information then contact the Complete Mortgages team on 01483 238280 or email info@complete-mortgages.co.uk to find out more.

Why owner-occupied commercial mortgages are good for business

Tuesday, 2nd August, 2016

Buy to let mortgages and their role as investment vehicles for those looking to become landlords or continue building a successful property portfolio (and the fallout of the EU referendum, of course) are never far from the news agenda.

But what about commercial property as an investment? In all the clamour caused by a combination of a) people wanting to invest in residential property and b) people trying to find out how the buy-to-let tax changes affects them, the humble commercial mortgage seems to have been sidelined.

Admittedly, it is a more specialist mortgage product when you compare the number of UK homes (approx. 27.8 million*) with the number of SMEs (approx. 5.4 million+), yet for business owners wanting more control over their costs and to avoid being at the mercy of their landlord, then a business mortgage might be the answer.

First of all, let’s take a closer look at the benefits.

You’re in control 

Particularly if you arrange a fixed rate mortgage. No more rent hikes or unwanted charges from the landlord, although if on a variable rate your mortgage will flex in line with interest rates.

Property values tend to go up, not down

Of course this is based on what we have seen so far and Complete Mortgages isn’t discounting the possibility that prices could start to fall, but property tends to appreciate. And, as the owner of the building, if it appreciates then you build value. It’s also worth highlighting that interest repayments on an owner-occupied commercial mortgage are tax deductible.

An extra revenue stream?

Whilst you may be frustrated with your own commercial landlord, it doesn’t mean that you can’t become one. Depending on the size of the property – and the agreement you have with your lender – why not let rooms or even desk space to smaller businesses. Matching those looking for office space with those who have space to let is now big business, and the number of self-employed people has dramatically increased, too (in 2014 the UK hit an all-time high of 4.5 million self employed people**).

Now let’s look at the things you’ll need to overcome in order to arrange a commercial mortgage.

Affordability vs. history

Commercial mortgages are not as clear-cut as residential mortgages and no two applications are the same. For example, Business A has been trading for 10 years and requires a £250,000 mortgage on a commercial unit that it is buying for £295,000.  Business B also needs to borrow £250,000 on a commercial unit that it is buying for £295,000 but has only just started trading. Unfortunately for Business B, the fact that it has less commercial experience means that it will need to provide a deposit of around a 50%. A mortgage broker will add value here by outlining where you stand from the outset.

Where to start?

There are countless commercial mortgage deals available however they all differ and they all come with their own pros and cons. Navigating this complicated market is resource-intensive and a typical commercial mortgage application can take time to complete for those making an application independently.

Preparation is everything

Make sure you have crafted that perfect business case before making a commercial mortgage application. Demonstrating that you’re aware of the challenges, the requirements and the figures will stand you in good stead when it comes to making a successful – and swift – mortgage application.

When it comes to commercial mortgages, our advice is to use a trusted mortgage broker that can not only present you with a suite of options that best suit the needs of you and your business, but also do the leg work for you.

Thinking of applying for an owner-occupied business mortgage? Contact Complete Mortgages on 01483 238280 or email info@complete-mortgages.co.uk to discover the commercial mortgages available to you. 

*http://visual.ons.gov.uk/uk-perspectives-housing-and-home-ownership-in-the-uk/

+www.parliament.uk/briefing-papers/sn06152.pdf

**https://www.parliament.uk/business/publications/research/key-issues-parliament-2015/work/self-employment/

Will commercial mortgages be the new buy-to-let in 2016?

Thursday, 7th January, 2016

Now that we’ve hit 2016 running, it’s always interesting to reflect on the preceding year – and 2015 was interesting for a number of reasons.

From the perspective of a Guildford mortgage broker, the most notable point was how the Surrey mortgage market went from strength to strength, with the revelation that banks lent more in October than any other point since 2008 when the financial crisis hit.

Another significant point was how the buy-to-let market remained hugely buoyant at the beginning of the year, only to then be rocked by the Chancellor’s announcement that the amount landlords will be able to claim will be capped at the basic rate of 20 per cent. This is being phased in up until 2020 however it has made buy-to-let investors reassess their mortgages in the interim.

As part of this reassessment, many investors have even refocused, moving away from traditional buy to let mortgages, opting instead for commercial property investments where rental yields can often be higher – a route many of our clients have avoided thus far because a) it’s seen as something other people (namely businesses) do, and b) arranging a commercial mortgage is, for some reason, perceived as being more difficult.

The good news is that it isn’t any more difficult and it’s also open to anyone. Not only that but it’s often a much quicker process based on the high number of commercial properties available compared with those in the residential sector.

Of course, using a reputable mortgage brokerage with access to a comprehensive range of commercial mortgage products, a thorough understanding of the commercial mortgage market and who knows how to navigate the commercial mortgage application process is crucial.

So, regardless of whether you’re a well-seasoned buy to let investor looking to venture away from the residential market, or a newcomer considering their options in the wake of the imminent tax changes, then why not make Complete Mortgages your first port of call in the New Year.

Our team of experienced professionals will advise you on your best options based on your finances, help you select a mortgage that complements your lifestyle and handle the entire application on your behalf. It couldn’t be any easier.

In the meantime, the team and myself watch with interest as we anticipate that 2016 will be the year of the commercial mortgage.

Discover what mortgages are available to you in 2016. Get in touch with the team on 01483 238280 or email info@complete-mortgages.co.uk.

 

Not all commercial mortgages are not regulated by the Financial Conduct Authority.

There will be a fee for arranging a commercial mortgage and the precise amount will depend upon your circumstances.

This fee would typically be between 0.50% and 1.00% of the mortgage amount and it is payable upon completion. We will let you know exactly what our fee will be once we understand the nature and complexity of your enquiry.

Complete Mortgages Property Limited is authorised and regulated by the Financial Conduct Authority under number 690735 in respect of consumer credit activities only.

Your home may be repossessed if you do not keep up repayments on your mortgage.