Commercial mortgages

Getting a commercial mortgage

A commercial mortgage is any mortgage on a property which is not your residence. A buy to let mortgage can also be considered as a type of commercial mortgage but they are usually dealt with separately. For the most part, commercial mortgages are mortgages on a business premise and not a place of residence.

As business premises can be for completely different purposes, mortgage lenders assess and price loans on an individual basis.

Commercial mortgage types

Depending on your requirements, commercial mortgages fall into one of two categories:

• Owner occupier mortgage – This is where the property is occupied by your own business.
• Commercial investment mortgage – This is where you purchase the property as an investment and rent it out to other businesses.

How much can I borrow?

Typically for an owner occupied property you can expect to get a mortgage of around 70-75% LTV (Loan to Value). For investment properties, the income you will generate will be taken into consideration, but you’re unlikely to get a mortgage that is more than 65% of the purchase price.

Commercial mortgage rates

Commercial mortgages are not standardised in the same way as a residential mortgage. Each rate is calculated on an individual basis and usually depends on a business’s track record and performance. If you’re looking for a mortgage for a new business then lenders will usually look at the industry sector and experience to determine potential risk.

Lenders will require a great deal of information before making a decision on your mortgage rate. They will usually have a risk profile that they will work towards when making lending decisions. If you fall below this criteria then your application will be refused. As part of this, an in-depth valuation will need to be carried out, with a 20-30 page document written up on the property, which are essential when taking out a mortgage on a business premise.

How long are commercial mortgages for?

Typically, commercial mortgages run from 3 to 25 years. If you’re looking for shorter term finance, then a bridging loan might be more appropriate. Bridging loans can last up to 24 months and help to ‘bridge the gap’ between selling and buying properties.