Commercial Mortgages are commonplace for business owners who already own their own premises or are looking to purchase new premises for an existing business for example. In addition, Commercial Mortgages can also be used by investors to purchase buildings as investments with the intention to sublet these buildings to other businesses in exchange for an agreed rental return, commonly referred to as the “lease”.
In the ever-changing mortgage environment, Commercial Mortgages are becoming far more commonplace as funding lines for investment property purchases, particularly in cases where Ltd Company ownership is involved, and the security being purchased is a House of Multiple Occupancy (HMO) or perhaps a number of flats/apartments being purchased all contained within one freehold building.
For a Commercial Mortgage, a maximum loan-to-value of 70-75% is normally available whether this be on an owner-occupier basis or investment basis. Lending is normally done via a Limited Company or Limited Liability Partnership where the mortgage holders are names Directors or Partners of said ownership vehicle. In these cases, the Director(s)/Partner(s) would provide personal guarantees for the mortgage, so that in the worst-case scenario should the Company or LLP dissolve they would still be responsible for the mortgage debt. The one caveat to this setup is where the Company is a trading entity and assets therein, on this basis the lender may forego the requirement for a personal guarantee from the Director(s)/Partner(s). In certain circumstances the lender may be willing to lend more than 70-75% on a particular asset if there is additional security involved, or perhaps assets within a trading business.
As with Buy-to-Let Mortgages, Commercial Mortgages are calculated based on the rental income being received for the security which is commonly referred to as the “yield” in a valuation report. An exception to his would perhaps be a trading business with Accounts upon which to calculate the possible loan amount. Each Commercial Lender is different so it’s always important to seek out independent advice from a qualified broker to ascertain which Lender will be able to provide the Client with the best possible deal based on their circumstances.
Unlike Buy-to-Let Mortgages where there are set products available, quite often with Commercial Mortgages the rate of interest and type of product available will be based on the strength and risk of the proposal. The Lender will consider the rental income, tenant type, location, the length of any lease in place on the security and other factors.
Some types of Commercial properties where funding has been secured by A Move Brokers are shops with living accommodation above (semi-commercial), light and heavy industrial units, B&B’s, Hotels, Pubs and Restaurants, blocks of flats, Houses in Multiple Occupation (HMO’s) and business buy-outs.
If you’re thinking of purchasing a Commercial property or would like to know more about Commercial Mortgages please do not hesitate to contact us.