A commercial mortgage loan is used for property that is not the main residence of the borrower. The most common use of a commercial mortgage loan is for buy-to-let property, but it can also be used by a business to purchase property.
Security
The commercial mortgage lender will require a form of security so that, if the borrower defaults on the loan, then the security can be used to repay the outstanding loan amount. Usually, the property being purchased is used as security for the loan. A deposit will also be required, which can be as much as 30% of the property’s value.
Some lenders can use other property that the borrower owns in place of a large deposit, but only if there is substantial equity remaining in the property. Other assets, such as an insurance policy or shares, can be considered for security.
Leasehold
If the property is leasehold, most lenders will require that the lease is for 70 years or more. If it is less, a commercial mortgage may still be obtained, but additional security will be required.
The length of loan
A commercial mortgage can last for between 3 and 25 years. If a loan is only required for a short period, then a bridging loan is more appropriate.
Interest rates
Most commercial mortgages are at a variable interest rate rather than a fixed one. This will be a fixed percentage over the bank LIBOR rate. For loans under £500,000, it is possible to obtain a fixed rate from some lenders.
There is no single standard interest rate for commercial mortgages. When applying for a commercial mortgage loan, a risk manager will assess the risk of the loan and will offer a rate based on his or her risk assessment.
Lenders have risk profiles. If an applicant falls outside of the risk assessment criteria, it means that the mortgage application could be refused.
Loan amount
The amount of money lent depends on the type of loan. A commercial mortgage loan will be for a percentage of the property’s value, which can be from 65% to 75%. If the loan is for buy-to-let property, then the expected rent will be taken into account when the lender decides on the size of the loan.
Fees
If the commercial property is for non-residential use, a valuer will examine the property and provide a 20 to 30-page valuation report to the lender. If an offer for a mortgage is accepted, then the valuer’s fees need to be paid. If the purchase is for residential property, a valuation will not normally be required.
Borrowers will be required to pay both their own and the lender’s legal fees.
Brokers
The best place to obtain a commercial mortgage loan is an experienced broker. Here at Ascot Mortgages, we have access to a wide range of commercial mortgage lenders, helping you find the best deal possible.
Contact us today for expert advice on commercial mortgage loans for your property investments.
