Commercial Mortgages – FAQ

14 Jun 2019

CAN I MORTGAGE A COMMERCIAL PROPERTY I ALREADY OWN?

Yes, in much the same way you can re-mortgage or re-finance a residential property you can do the same with commercial property. Re-financing will incur transactions costs so make sure the savings on the re-finance out way the costs of setting up a new product.

CAN I REDEEM A COMMERCIAL MORTGAGE EARLY?

You may also pay any borrowings off early, although many mortgages come with an early redemption penalty fee. Usually this is a % of the total borrowing reducing over three to five years.

CAN I GET A BUSINESS MORTGAGE WITH NO DEPOSIT?

100% LTV (loan-to-value) commercial mortgages are rare, but not impossible. You will have to offer additional security such as other property or assets and those that are available will typically charge much higher fees and rates.

The more deposit you can put up the better interest rate you are going to get because the risk for the lender is reduced.

IS BUSINESS MORTGAGE INTEREST TAX DEDUCTIBLE?

Yes. There are also tax advantages to putting a commercial property into a SIPP, but you would need to take specialist advice to set up this type of transaction.

WHY ARE COMMERCIAL MORTGAGE RATES HIGHER THAN FOR RESIDENTIAL MORTGAGES?

Prices are determined by risk. With commercial mortgages, the ability to make repayments is dependent on the performance of the business, and if it doesn’t perform, the bank will have limited assets from which to make its money back. It is also more difficult to assess the creditworthiness of a business, particularly one with short trading history.

HOW LONG ARE COMMERCIAL MORTGAGES?

Typically, commercial mortgage terms are around 15-20 years. But it is possible to get terms as little as three years and as long as 40 years. Some lenders have an Early Redemption Charge (ERC) it typically starts at 5% when you first lock into the mortgage and then reduces during the fixed loan period, but because commercial mortgages are bespoke products and not pre-packaged, this is often negotiable at the outset with most lenders.

ARE COMMERCIAL MORTGAGES INTEREST ONLY?

Lenders prefer to see balances reducing, both capital and interest. However, with investment mortgages, lenders do understand the tax position of their customer, so in these cases they will help by not insisting on capital repayment so long as the LTV is below a certain amount (often 60%), allowing the borrower to pay interest only. In other cases, lenders will grant a short period of interest only for example the first year.

CAN YOU GET A COMMERCIAL MORTGAGE WITHOUT ANY ACCOUNTS?

A lender wants to evidence that a proposed loan would be affordable to the borrower to do this the lender will normally ask to see the last three years’ accounts to prove this. Exceptions can be made where a business plan can show that the loan repayments will be affordable.

100% LTV (loan-to-value) commercial mortgages are available but will typically charge much higher fees and rates. Having at least a 20% deposit will give you more choice and better terms.

For any further questions or for a no-obligation quote give us a call.

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