Commercial Business Mortgage

What’s the difference between residential and commercial mortgages?

While commercial mortgages are similar to residential mortgages in that they are a loan taken out for the purpose of buying a property or land, there are some significant differences.#

Value

The value of the land or property for commercial mortgages tends to be larger than with residential mortgages.

Risk

With higher risks involved, lenders tend to require a larger deposit. Indeed, most lenders will require a commercial mortgage deposit of between 25% to 50%. This means you will be looking for mortgages with a maximum loan to value ratio (LTV) of 75% or lower.

Mortgage term

While residential mortgages tend to have a 25 to 30-year term as standard, a mortgage on a commercial property is typically much shorter. Indeed, they can be anything between 1 and 25 years, although many are capped at 15 years.

Which kind of properties can I buy with a commercial mortgage?

Any property that generates income can be bought using a commercial mortgage.  Shops, offices, retail outlets, industrial units and restaurants are obvious examples.

Who is a commercial mortgage suitable for?

The reason commercial mortgages are sometimes known as a business mortgages or business mortgage loans, is because they are often used by smaller companies to finance expansion plans or reduce costs; for example if they want to buy a business premises rather than rent one.

How could commercial mortgage help you?

If your business has outgrown the office space you are renting, or the landlord has proposed a painful hike in rent, you could consider buying your own, larger premises.

By buying property or land for business use you will own the premises as an asset. Not only does this save you from having to pay rent to a landlord, but your mortgage payments could be significantly cheaper, too.

Types of commercial mortgages

There are two main types of commercial mortgage:

Owner occupier mortgages 

These types of commercial mortgages are when the business owner is looking to buy a property in which they can run their business.

Commercial investment mortgages 

These can be used if you are buying property as an investment opportunity, for example to rent out the property.

These are considered more riskier than owner occupier commercial mortgages. It is also possible to take out a commercial buy to let mortgage that allows you to purchase a property that is let to one or more businesses.

Commercial mortgages are also a type of secured loan, which means the property is used as collateral by the lender against the loan. If you fall behind on your payments, you could lose the property, which is an unnerving thought.

How do commercial mortgage interest rates work

Getting a mortgage on commercial property is considered higher risk, which means the interest rates offered can be higher than those for residential mortgages. For this reason, commercial mortgage lenders typically insist on higher deposits as a percentage of the property’s value and more detailed application processes.

But interestingly, unlike residential mortgages, when you apply for a mortgage for business, there are no set rates. With so many different types of businesses in the UK there is no blueprint to follow, so each application will be reviewed thoroughly by the lender on its own merits and the associated risks calculated. 

How to get a commercial mortgage

Commercial mortgages can be a bit of a minefield to navigate can be a bit overwhelming. If you decide to apply for a commercial mortgage and hope to be offered the most competitive business mortgage rates, proper preparation will be worth its weight in gold, and that is where Aspen Commercial Finance can help.

You will benefit from our knowledge of the market and be paired with a lender best suited to your type of business.  Different lenders specialise in lending to different business types so we take the time to investigate which lender is most suitable for you

Using a mortgage broker to find a commercial mortgage

By hiring a specialist commercial mortgage broker, you can benefit from their knowledge of the market and be paired with a lender best suited to your type of business. 

Alternatives to commercial mortgages

You may find a commercial mortgage is not the best option for your business. Alternative ways companies can borrow money include:

Short term business loans: These loans, taken over a short period of time, can help you with your cash flow when you need them, without any long-term commitments.

Bridging loans: These loans are short term, high-rate loans that are typically used by individuals that need to complete the purchase of one property, before buying another.

Development loan: These loans are usually taken out for 6 to 18 months for the purchase of land or development of buildings. The funds are issued in stages and must be authorised before the next stage can commence