Where to Get Commercial Mortgage in the UK

If you are looking to purchase or invest in commercial property in the UK, you will need to secure a commercial mortgage. This is a type of property loan that is specifically designed for businesses and is secured against the property being purchased.

What is Commercial Mortgage?

A commercial mortgage is a type of loan that is used to finance the purchase or refinancing of commercial real estate, such as office buildings, retail stores, apartments, warehouses, and industrial properties. These loans are typically secured by the property itself, meaning that the lender can foreclose on the property if the borrower defaults on the loan.

Types of Commercial Mortgages

There are two main types of commercial mortgages available in the UK:

• Commercial property mortgages: These mortgages are used to finance the purchase of commercial property that will not be occupied by the borrower. This could include office buildings, retail space, or industrial property.
• Owner-occupied commercial mortgages: An Owner-occupier mortgage is a mortgage that is used to buy or develop property that is to host your business. As such, the property acts as trading premises for your business. This could include a shop, restaurant, or office. You can use an owner-occupied commercial mortgage to secure financing to acquire a building, improve a property, or even refinance an existing property. To qualify for an owner-occupied commercial mortgage, you must occupy more than 51% or more of the building.

How to Qualify for a Commercial Mortgage

The eligibility criteria for a commercial mortgage will vary from lender to lender, but some of the common factors that lenders will consider include:

• Your creditworthiness: This includes your credit history, debt-to-income ratio, and overall financial health. Lenders will want to see that you have a good track record of paying your bills and that you have a steady income to support the loan payments.
• The property’s value: The lender will want to make sure that the property is worth enough to secure the loan.
• Your experience: Lenders will often prefer to lend to borrowers with experience in managing commercial property. This is because they know that you will be able to manage the property effectively and generate enough income to cover the loan payments.
• Deposit: A down payment of 20% to 30% is typically required for commercial property mortgages. This means you’ll need to provide a significant portion of the property’s purchase price upfront.

Commercial Mortgages Rates in the UK

The commercial mortgage rate is the interest rate that the borrower will pay on the loan. Commercial mortgage rates in the UK vary depending on a number of factors, including the size and type of property, your financial strength, and the current market conditions. As of November 2023, commercial mortgage rates typically range from 2% to 12%.

Commercial Mortgage LTV Ratio in the UK

The commercial mortgage loan-to-value (LTV) ratio is the percentage of the purchase price of a commercial property that the lender is willing to finance. For instance, if you are looking to purchase a commercial property worth £1 million, the lender would typically require a down payment of at least £200,000 (20% LTV) and would be willing to finance up to £800,000 (80% LTV).

The LTV ratio is an important factor for lenders to consider when approving a commercial mortgage loan. A higher LTV ratio means that the lender is lending more money relative to the value of the property, which increases the risk of loss if you default on the loan. As a result, lenders typically charge higher interest rates for loans with higher LTV ratios.

Commercial Mortgage Lenders

There are many commercial mortgage lenders you can use to get a commercial property mortgage in the UK, including banks, building societies, and specialist lenders. Some of the best commercial mortgage lenders include:

Commercial Mortgage Brokers in the UK

Commercial mortgage brokers act as intermediaries between you and lenders. They help you find the best commercial mortgage deals by shopping around for loans from multiple lenders. They also assist in preparing loan applications and negotiating terms with lenders. Commercial mortgage brokers generally charge a fee for their services, typically a percentage of the loan amount.

Here are some of the top commercial mortgage brokers in the UK:

• Fox Davidson
• Swoop
• John Charcol
• Funding Focus
• Mortgages for Business
• AS Financial
• Private Finance
• Ascot Mortgages

Tips for Getting Commercial Mortgage

Getting a commercial mortgage can be a complex process, but with careful planning and preparation, it can be an attainable goal. Here’s a breakdown of the key steps involved:

• Define your filing structure: Decide whether to apply as an individual or an entity (corporation or LLC). Each option has its own advantages and considerations, such as liability protection and administrative requirements.
• Select the right loan type: Explore various commercial real estate loan options and identify the one that best suits your property type, financial situation, and investment objectives.
• Calculate the LTV ratio: Determine the loan-to-value (LTV) ratio, which represents the proportion of the loan amount relative to the property’s appraised value. A higher LTV may lead to higher interest rates.
• Maintain good credit history: Your credit history plays a significant role in determining your eligibility for a commercial mortgage.
• Avoid balloon payments: Balloon payments are large lump sum payments that are due at the end of the loan term. They can be difficult to afford, especially for commercial loans, which typically have shorter maturities than residential mortgages.
• Consult Professional Experts: Engage with experienced commercial real estate attorneys and accountants to ensure proper legal and tax implications are addressed throughout the loan process. Their expertise can help you navigate complex regulatory and financial considerations.

Getting Commercial Mortgage in the UK

Getting a commercial property for your business can be a significant step in expanding your operations and establishing a more permanent presence. A commercial mortgage can be a valuable tool in providing the necessary capital to purchase or refinance commercial property. Applying for a commercial mortgage in the UK requires careful consideration of various factors, including loan-to-value ratio (LTV), interest rates, repayment terms, and eligibility criteria. We advise you to research and compare options from various commerical mortgage lenders or commercial morgage brokers such as the ones listed on this article to find the most suitable terms and conditions for your specific needs.