What is a commercial mortgage broker?
A commercial mortgage broker is a mortgage broker who deals with commercial mortgages. These are mortgages that are not for residential purposes e.g mortgages for an investment property or office space. Commercial mortgages are taken out by businesses and not individuals and for this reason, the affordability and eligibility criteria are very different.
What does a commercial mortgage broker do?
A commercial mortgage brokers job is to source the best lending options and present them to their client. Commercial mortgage brokers will have a range of experience on commercial mortgage lenders and their different product features.
A good commercial mortgage broker will be able to source the best rates and commercial mortgage terms for their clients. They will do this after listening to their client’s commercial mortgage needs and examining their client’s financial documents, property documents and the commercial mortgage market at the current time.
Once the commercial mortgage broker has reviewed the customer’s commercial mortgage needs and reviewed the customer’s files they will then discuss the available funding options to the client and advise them( if suitable) of which funding option may be best suited to their needs.
A good commercial mortgage broker will also have a range of commercial mortgage lenders available to them to ensure their customers can receive offers from a wider pool of lenders. Having a good pool of commercial mortgage lenders may be the difference between paying £100,000 more or less for a commercial mortgage.
Aside from the above point, a good commercial mortgage broker will also have a few key relationships with the underwriters at different commercial mortgage lenders. This means if there are any issues when submitting an application this can be handled faster and with a better outcome.
What is the average down payment on commercial property?
The average down payment on a commercial mortgage will be 30%. Commercial mortgages are much riskier than standard mortgages and therefore the increased mortgage deposit reflects this. You can however still find 100% LTV commercial mortgages with commercial mortgage brokers who have a wide panel of lenders.
What type of company can get a commercial mortgage?
- Limited company
- Offshore company
- Limited Liability Partnership (LLP)
- SPV (Special Purpose Vehicle)
How much deposit do I need for a commercial mortgage?
The commercial mortgage deposit you may be required to put down could be between 25% to 40% depending on the level of risk to the commercial mortgage lender.
The deposit you may be required to pay down on a commercial mortgage will depend on a few things.
- Your current affordability as a borrower ( Your credit rating)
- The property you intend to borrow for
- Your future plans with the property
- The type of commercial mortgage you are after ( the commercial mortgage deposits requirement could differ especially due to the type of commercial mortgage you are after.
Your current affordability as a borrower:
The commercial mortgage broker will be able to tell you what your chances are with each commercial mortgage lender based on your credit rating, the mortgage deposit you have and your business’s financial information.
The property you intend to borrow:
Commercial mortgage lenders will have different requirements for the properties they are willing to lend on. Your commercial mortgage broker should have enough experience to navigate you to the commercial mortgage lenders which match your needs.
Your future plans with the property:
Commercial mortgage lenders will often look at your future plans with the property and decide for themselves if it will generate enough revenue for them to see it as a viable investment of it your proposal is too risky for them.
There are two main types of commercial mortgages in the UK:
- Owner-occupier mortgages: This is a commercial mortgage for business premises you plan to trade out of. Owner occupier mortgages tend to carry less risk and hence mortgage lenders will usually require between 20% to 30% down as a commercial mortgage deposit this means a loan to value( LTV) of between 70% to 80%.
- Commercial investment mortgages: This is a commercial mortgage for a property you intend to let out to another business. Commercial investment mortgages are seen as more riskier to the mortgage lender and they usually require a minimum 25% down as a mortgage deposit and hence the Loan to value (LTV) is usually below 75%.
How can I get a low deposit commercial mortgage?
Yes, you can but your commercial mortgage broker will likely ask you to provide much more security so the mortgage lenders feel at ease with reducing their lending criteria to fit you in. You could provide an unmortgaged property or mortgaged property with significant equity as collateral in your commercial mortgage application. A car, shares or even fine wine. The mortgage lender will have to be satisfied with whatever you provide.
Can you get a mortgage on commercial property?
Yes, as long as you are a business intending to purchase the property then you can get a commercial mortgage but the mortgage will only be available for properties which you intend to use for business in one way or another and not for private or residential needs for yourself.
Can you get a commercial loan with no money down?
Yes, it is very possible for you to get a commercial mortgage without any commercial mortgage deposit but your commercial mortgage broker will likely advise you to put up a significant amount of security and you will likely need to have a past record of being able to repay your credit obligations, a good business case and an acceptable property.
Commercial mortgage brokers have been known to offer 100% loan to value (LTV) Mortgages if everything sits well with them.
What is the current interest rate for commercial mortgages?
Commercial mortgage interest rates are varied but they usually fall within these 3 brackets.
Owner-occupied commercial mortgage rates: 2.25% to 18%. Although most applicants will pay between 2.75% and 7%.
Commercial investment mortgages: 3.5% and 6%.These rates are slightly higher than Owner occupied mortgages but a strong application can get 2.85% or less.
Generally, the commercial mortgage rates will reflect the risk to the commercial mortgage lender.
What affects commercial mortgage rates?
Some of the factors affecting the commercial mortgage rates include:
- Your credit score and history( you can look to build your credit score proper to applying)
- The commercial mortgage loan to value (LTV)
- Your mortgage deposit
- Your security or collateral
- The commercial mortgage loan size
- The length and quality of the tenant and lease (for investment properties)
- The type of lender (and their lending criteria)
- The financials/strength and age of your business
What properties could you get a commercial mortgage for?
- Commercial or residential buy to let investment properties
- Office buildings
- Warehouses and factories
- Farms & Land
- Shops and retail premises
- Professional practices (e.g. solicitors’ offices)
Commercial mortgage fees
Your commercial mortgage broker will inform you of the fees you are likely to incur prior to proceeding with your case.
Commercial mortgage Lender Arrangement Fee
The lender will charge this fee for arranging the loan. You can pay this at the end on completion or add it to your mortgage but it may cost you significantly more in the future. The fees are usually between 0.75% – 2.5%
Some lenders may charge a commitment fee on acceptance of the formal mortgage offer. This is usually 0.25% and is deducted from the arrangement fee.
Commercial mortgage Broker Fee
Most commercial mortgage brokers will charge fees of 1%+ for arranging commercial mortgages.
Commercial mortgage Valuation Fee
Commercial mortgage lenders carry out their own valuation and this is paid once an offer has been issued subject to the valuation. The fees are much higher than residential mortgages.
Commercial mortgage Legal Fees
Commercial mortgage applications are more complex than residential mortgages and so the fees are much higher. You also have to pay the legal fees of the commercial mortgage lender as well.
If you need financial advice and you live in the UK then you could contact the Money Advice service over the phone or via chat for impartial advice.
You can also contact the debt charity “Step Change” if you are in debt and need help.