There are two main types of commercial mortgage loans: business mortgages and commercial investment mortgages.
A business mortgage is used for individuals or businesses to purchase premises that they will occupy to run a business. They can also be used to purchase mixed purpose properties such as shops or hotels that are part residential and part commercial. These are known as semi-commercial properties.
The mortgage will generally be repaid using the income from the business. If the property is larger than the business needs, additional income can be generated by renting out portions of the building.
Commercial investment mortgages
Commercial investment mortgages are a type of commercial mortgage used to purchase property that will be rented out, for business use such as offices, warehouses, and workshops. These mortgages can also be used for rented residential accommodation known as buy-to-let investments.
These investments are designed to make a profit both from the rental income and the increase in the value of the property.
How to obtain a commercial mortgage
Whatever you may want a commercial mortgage for, there are a number of things that the lender needs to know about you and your business. The first criteria that the lender needs to establish is that you can afford to repay the mortgage.
In the case of a commercial investment mortgage, the rents need to be able to cover the mortgage repayments. The minimum that will be required for buy-to-let properties is that the rent will cover at least 125% of the mortgage payments, but be aware that this figure will rise to 145% in 2017. The lender will also need to be satisfied that the borrower can afford the mortgage repayments should the interest rate on the loan rise to 5.5% or above.
For a business mortgage, the lender needs to examine the accounts to make sure that the finances of the business are healthy and it can easily afford the repayments. If the business is a new startup, this can obviously make it more difficult, and may require additional security in the form of other property or assets owned by the business or a partner in the business.
The property being purchased will be used as security for the loan, which means that if mortgage repayments fall into arrears, the property could be repossessed.
The borrower will also be required to pay a deposit, which will usually be at least 10% of the value of the property, but can be considerably more.
Where to get a commercial mortgage
It is advisable to go to a mortgage brokers to obtain a commercial mortgage. Brokers have access to a wide range of commercial mortgage deals and can match a borrower’s needs to the right mortgage deal.
If you are interested in purchasing commercial or buy-to-let property, be sure to contact Ascot Mortgages today for a free no obligation discussion in which you can explore all the options available to you.