Commercial mortgage lenders

Commercial mortgage lenders in the UK – Where to get lending from for commercial mortgages?

Are you looking to purchase business premises for your company? If so, you’ve probably heard all about commercial mortgages. But what are they, and how do commercial mortgage lenders work?

Commercial mortgages have been specifically designed for business owners. They’re a step up from a business loan and are used when a company wants to purchase a commercial property and needs a rather large loan to do this.

Although you can apply for a commercial mortgage on your own, the market is complex, so considering the help of a specialist is a good idea, especially if this is your first time.

Whether you’re new to the world of mortgages or have had one before, you’re sure to find this guide useful. We’ll cover all aspects of applying for your mortgage and other things you need to know to increase your chances of your application being accepted.

If you’d like to find a suitable mortgage lender, contact us below:

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See also our other commercial finance services.

Types of commercial mortgage lenders in the UK?

There are typically two commercial property mortgage types. The first is an owner-occupier arrangement where you need a property for business premises.

The second is a commercial investment mortgage for if you want to invest in commercial property and maybe lend it to a third party, which is similar to buy-to-let mortgages. The mortgage you choose can affect the kind of finance and rates you’re offered, so you must choose the right one.

Remember that whichever type of commercial mortgage you need, you will likely be unable to use the loan to buy the property in full. A business mortgage typically requires a deposit of between 25-40%, but you may be able to secure the loan with another property, as long as you have substantial equity.

Many commercial mortgages have variable rates, and you can usually choose from various terms, with 15-30 year terms being the most commonly available.

Short-term commercial property financing is available too, but this is usually known as a bridging loan or property development.

How to find the best commercial mortgage lenders in the UK?

The most effective method of finding the best mortgage deals is to work with an experienced and knowledgeable commercial mortgage broker. A good broker will take the time to understand your circumstances and find the best deal for you.

The more information your broker has about you, the better. This includes your future business plans such as expansion and details of any debts your business has. Here are some additional details your broker will need:

• Your budget
• Your company’s expenditure and income
• The size of your deposit
• Where the property you want to purchase is located
• What type of property it is (apartment, office etc)
• Your credit rating

Offering these details may be a bit daunting, but it’s your broker’s job to keep all information confidential and discreet. The details will only ever be used to find specialist commercial mortgage lenders and deals.

How do I approach a commercial mortgage lender?

If you’re thinking of taking out a commercial mortgage, the best thing to do is hire the services of a broker, especially if you’ve never taken one out before. But, if you do want to go it alone, here are some tips for increasing your chances of a successful application:

Assess your cashflow

Firstly, your company will need cash flow if it’s going to thrive. This allows your business to pay expenses, bills, and salaries and take advantage of growth opportunities.

Before you apply for a commercial mortgage, review your cash flow so you can predict how it will change over time. Will it be seasonal, or is it consistent? Remember that many lenders will need evidence of your forecasts so you must understand how much access to the cash you’ll have.

Show you can afford it

Will you be able to afford the monthly repayments? Many lenders will need evidence that your company can repay the business mortgage, so you’ll need to show that your company finances will be able to afford the repayments.

Here, it would be very helpful to work out the maximum loan amount your business can afford to repay monthly.

Create a business plan

Many lenders will need lots of information before they consider your commercial mortgage application. This is where you define your company. What business do you run, and how will you make it successful or more profitable?

If it’s a new business, then it’s important to make sure you have the appropriate permissions, such as a pub license etc. The more detail you include in your business plan, the more confidence it will instil in your lender. Essential details you should include are:

• Your expertise
• Your business
• The services or products you offer
• Your prices
• Your clients
• Your future and goals

What to Look for In a Commercial Mortgage Lender?

Buying a commercial property is a huge purchase, so choosing the right mortgage lender is essential. But it may seem impossible to know what to look for, especially if you’ve never taken out a mortgage before. Here are some things to look for when searching for mortgage lenders:

• Ideally, they’ll offer various loan options
• They have experience in your specific market
• They offer competitive commercial mortgage interest rates
• They’re transparent about their fees
• They should be regulated by the financial conduct authority

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Common Questions Asked By Commercial Mortgage Lenders

If you’re taking out a commercial mortgage, your lender will ask questions during the application process. The answers you give will be crucial to securing the loan, so here are some common questions you can expect to be asked.

How much money do you need and what is the purpose?

This is probably the first question you’ll be asked when you make the loan application. How much you want to borrow and why is important. A commercial mortgage provider will need to build a relationship with you, so your answer will set the tone for the rest of the process.

Will you be able to repay the loan?

Ultimately, every commercial mortgage provider will want to know if your business can pay back the money. The provider will want reassurance that they’ll get their money back so you must discuss a repayment schedule with them in detail.

With commercial mortgages, there are two different types of repayment schedules – long term and immediate. Long term loans can be up to 20 years whereas immediate loans have to be repaid within 2 years.

Which property are you looking to buy?

The lender will want to know about the property in question and how you’ll use it. They’ll also ask you about the property’s value and its current condition. For a quick and hassle-free process, be sure to give the lender all the relevant information.

Do Commercial Mortgage Lenders Charge a Fee for Their Service?

Yes, taking out a commercial mortgage will involve a series of fees you’ll need to pay. Below you’ll find the fees you’re likely to be charged.

Arrangement fees

You’ll pay an arrangement fee to your lender for organising the loan. It’s usually added to the loan and is typically 0.75% to 2% of the full amount. If you opt to add this fee to your mortgage, you’ll pay interest on it throughout the agreement.

Valuation fees

This fee is used to pay for a valuer to be sent to the property to evaluate its worth. The costs are usually higher than residential property valuation fees. This is because the valuer has to consider additional factors such as marketability and rental yield.

Broker fees

A broker specialising in commercial mortgages can help you get the best deal. As well as this, they’ll take the application to the lender for you to increase the chance of it being accepted. This fee is usually around 1% of the loan amount.

Legal fees

Legal fees can vary depending on which solicitor you opt for. They usually start at a few hundred pounds, and the lender’s legal fees will be payable by you as well.

Are There Lenders Who Offer Bad Credit Business Mortgages?

Yes, even if you have poor credit on your file, whether it belongs to you or the company you’re applying through, it is possible to make a successful commercial mortgage application.

Although you won’t have as many lenders to choose from, the commercial market is huge and you’ll find plenty of specialist mortgage lenders who are flexible when it comes to borrowers with poor credit.

Bad credit mortgage lenders in the commercial market usually have the flexibility to consider the severity and age of your credit problems. But other things will sway their decision, such as how well you meet the other eligibility criteria.

There are also a few ways you can reduce the risk caused by your bad credit, including putting down an additional deposit or offering a personal guarantee.

Do You Get Lenders That Offer Semi-Commercial Mortgages in the UK?

Yes, you can. Semi-commercial mortgages are for purchasing a property that involves both residential and commercial use, usually known as a mixed-use property. This mortgage product is also known as a “part residential part-commercial mortgage” or a “mixed-use mortgage”.

Some examples of semi-commercial mortgages may include:

• A shop with a flat above it
• A pub that has a residential living space
• A guest house with accommodation for the owner
• Any other type of property that has both commercial and residential floor space, even if the residential facilities are larger than the commercial facilities.

If the property you’re looking to purchase has a mix of commercial and residential floor space, you could be eligible for one. The exception to this would be if the residential part of the property has a separate entrance. In this case, you could take out two mortgages, one residential and one commercial.

The Difference Between Commercial Mortgage Lenders and Residential Mortgage Providers

As the name suggests, a residential mortgage is a loan secured on a building you’ll live in, your residence. Whereas, a commercial mortgage, sometimes called a business mortgage is for business owners who want to purchase land or a property for commercial use.

The main difference between the two is that the value of the property is typically bigger if it’s being sold for commercial use. Some other differences include:

• Because of the large variation in premises and land that can be used for commercial purposes, commercial mortgages are not “pre-set” products like residential property mortgages are.
• There’ll be a higher interest rate on your commercial mortgage because lenders see them as higher risk than residential mortgages
• Commercial mortgages usually offer more affordable interest rates than regular business loans because they require a property to be used as collateral.
• Commercial mortgages typically last from 12 months to 15 years, compared to residential mortgages which can last up to 30 years.

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What You Should Know Before Working With a Commercial Mortgage Lender

Before you take out a mortgage for your commercial property, you should know that lenders usually have three sets of criteria that you’ll have to meet before they grant you the loan. These requirements will relate to your company and personal finances, and your property’s characteristics.

Business finances

Commercial mortgages usually involve a lot of scrutiny. Some businesses, especially small companies, are considered high risk. The provider will need to take a look at your books to check that your business will be capable of repaying the loan. Read also: B&B Loans: Bed and Breakfast Finance Loans.

The lender will probably calculate your business’s debt service coverage ratio, this is your annual net operating income or NOI, and divide it by your annual total debt service. This is the amount you’ll need to pay back the interest and principal on the debt.

Personal finances

Commercial mortgage providers will check your personal credit history to check if you have had past financial issues, such as tax liens, defaults, foreclosures, and more. A poor credit score could negatively affect your business’s chance of a successful application for a commercial mortgage.

However, there are private and specialist mortgage providers who have different ways of assessing applications from borrowers with poor credit. Some providers may be happy to loan money to people with previous county court judgements or who have been bankrupt. But, there will be premium interest rates for these loans.

What You Should Not Say to a Commercial Mortgage Lender

When applying for a commercial loan, not only is it important to say the right things, but it’s also about knowing what not to say.

The first thing to remember is to never lie to your mortgage lender. This is illegal and is classed as mortgage fraud. Lenders need to check key financial documents so if you’re having problems, let them know and they can help you.

Another thing to avoid asking your lender is “how much can I borrow”. Never ask this question as it shows the lender that you haven’t considered this loan seriously and it makes you sound uninformed. Lenders will want to know that you understand the impact of such a big loan, but questions like that will give the opposite impression.

Lastly, make sure all the information and details in your application are correct and up to date. Lenders don’t like it when things change during the application process. It makes their job harder and you’ll come across as sloppy. Making sure everything is correct means the process will be quick and seamless for everyone.

How to Choose the Best Commercial Mortgage Lender in the UK

Although most commercial mortgages will be underwritten in generally the same way, all lenders have their own terms and rules, so it’s very important to shop around. This will allow you to get the best possible deal on your commercial property.

Your personal circumstances aren’t quite as relevant for a commercial mortgage, but there’ll be large variations when it comes to the lender’s other criteria.

Commercial Mortgage Lenders in the UK

When it comes to searching for a commercial mortgage lender in the UK, you’ll have various options to choose from. Be sure to consider the benefits of each lender before you make your choice. UK commercial mortgage lenders include:

• Allica Bank
• Nationwide commercial mortgage
• TSB commercial mortgage
• Kent Reliance commercial mortgage
• Fleet commercial mortgage
• Aviva Investors

The Benefits of Using a Commercial Mortgage Broker

There are many benefits of using a broker to find the best commercial mortgage deal, especially if this is your first time taking out a mortgage. Take a look at some of the advantages you could benefit from by using a broker below.

A better view of the commercial mortgage market

Although many high street lenders provide commercial mortgages, there are also lenders that aren’t well known such as private banks and specialist lenders. If you’re not familiar with these alternative lenders then you won’t know what they’re offering and you may miss out on a great deal.

A knowledgeable broker will be able to show you a larger range of available lenders, both mainstream and niche.

Access to mortgages from a wide range of lenders

Some lenders won’t even consider mortgage applications that have come directly from borrowers as they only work through intermediaries. Using a broker may open up lots more options for you.

They will be able to find you the best deal in terms of charges and rates, which on a large mortgage, could save you a substantial amount during the loan.

You’ll be guided through the process

There’s no way around it, purchasing a property is a complex process even without applying for a mortgage. Because of this you’ll probably feel better having an experienced and knowledgeable broker to guide you through each stage.

Your broker will check to ensure you have the relevant paperwork and that you’ve filled in the documents correctly including the asset and liability form, and the application itself.

Final Thoughts

Hopefully, this guide has given you some helpful tips and advice about applying for your business mortgage. Because the commercial mortgage process is a complicated one, it’s always recommended that you go through an experienced broker.

This is especially true if you’ve never had a mortgage before or if your business is new. New businesses are often seen as high risk so the loan to value rates are likely to be up to 50% of the property price and you may be required to provide a personal guarantee.

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FAQs

Can a lender cancel your commercial mortgage?

Yes, lenders can withdraw their offers pretty much whenever they feel it’s needed, even if you’ve reached the completion day. Although this can be incredibly frustrating, especially with a commercial mortgage, you mustn’t make any hasty decisions.

If the reason for the cancelled application can’t be resolved, it’s a good idea to speak to a professional broker, if you haven’t already. Some common reasons why an application may be withdrawn include:

• Issues with the property
• Change of circumstances
• Suspicious activity
• You failed additional credit checks

What are the most important questions to ask a mortgage lender?

Because commercial mortgages are typically large sums of money, it’s important to ask the lender the right questions. These include:

• Are you an expert in my particular market?
• How long will it take to close the loan?
• Do you offer other loan options?
• What are your application fees?

Do commercial mortgage lenders look at spending habits?

Yes, whether your mortgage is for a commercial or residential property, a lender will assess your business and personal finances to see if you’ve had financial problems in the past. This is especially true if you have a small business as these are typically run by one owner or a few partners.

A poor personal credit score could negatively affect your business’s chance of being approved for a commercial mortgage.

Does it matter what commercial mortgage lender you use?

When it comes to commercial mortgage lenders, there’s no real hard and fast rule about which one you should use. The offer you’ll be given will depend on your eligibility, credit history and mortgage amount. A good mortgage broker can find a deal that suits you and your business well.

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