Commercial mortgages are secured to premises that will not be used for residential purposes. Excluding buy-to-lets, commercial mortgages are assessed on a case-by-case basis. This means that, unlike residential mortgages, it is difficult for an advisor to predict the likelihood of a successful application. Many factors are accounted for by commercial underwriters when making lending decisions.
The most common factors include:
- Loan-to-value percentage
- Annual revenue generated/income projections
- Type of premises
- Commercial use
- Applicant experience in the industry
Your advisor will not be able to showcase pre-determined interest rates for commercial mortgages. This is primarily because, as explained, the underwriters assess the risk of the case on many variables. These variables are often disclosed after an application has been submitted.
What is the difference between a business loan and a commercial mortgage?
The key difference is that business loans do not typically exceed £25,000. Loans of up to £25,000 can be acquired through a straightforward unsecured loan application. Whereas, for loans of above £25,000, the lender will often demand collateral in the form of a property. Due to the significant administrative processes involved with a commercial mortgage, many lenders have minimum loan requirements such as £75,000.
How much can be borrowed?
If the applicant already owns the property to be mortgaged, between 70%-75% of the property’s valuation can be secured. Whereas, if a commercial mortgage is required for a future investment property, a 65% mortgage limit of the property’s valuation is expected. This is because there is no track record of success with future investments. Therefore, such investments carry excess risk for lenders. For this reason, commercial mortgages for properties with no track record of reliable returns have higher interest rates and fees than existing business proposals.
For further information on commercial mortgages, click the ‘Contact us’ button and submit a mortgage enquiry form. Our advisors will be happy to arrange a free consultation to discuss your requirements in depth.