What is a commercial mortgage and who can apply?
A commercial mortgage is used for any property purchase that is not for your sole residential use. Due to the fact that every premises is different, each application is individually processed, assessed and the rate of interest will reflect the risk value of the acquisition.
When would you look at taking out a commercial mortgage? Commercial loans tend to take over once a business loan hits £25,000. Generally anything up to that amount is unsecured, after that a lender will need greater security to offset any risk. It is considered uneconomic to take out a commercial mortgage under £50,000 due to the legal and administrative costs involved. Some lenders have minimum amounts that they will lend.
Using a specialist mortgage broker is essential for this type of loan. They will understand every single intricacy involved, and will research and advise on the best loan type for your circumstances. Security is important, so the lender will take a percentage of the property being purchased as collateral. How much will depend on the provider used. A deposit will also be required for the remainder of the value of the loan. If a cash deposit is not possible then security can be taken on a property that has a large amount of equity in it, or a charge put on other assets or shares.
Commercial mortgages can span a 25 year period however short term finance is available. According to money supermarket a typical rate will be quoted as “X% over base or LIBOR”. The lender will vary the rate of interest according to how ‘risky’ the loan is. It goes without saying that a large loan with a low risk will get a better interest rate. Arrangement and valuation also apply and are normally a percentage of the loan amount.
Using the right broker is essential. We have many years’ experience, have the right contacts and know the market so we will make sure you get the best deal. The codes of practice that they are legally obliged to follow mean that you will always get the best possible quality of service.