Compare Commercial Mortgages

How to choose a commercial mortgage

If you need a mortgage to buy a non-residential property for your business, you’ll be looking to get a commercial mortgage. Although similar to residential mortgages in many ways, there are notable differences that you may not be aware of.

Commercial mortgage providers range from specialist lenders to high street banks and each will offer different terms and loan amounts, as well as having varying lending criteria. It’s important to consider your options when choosing between them, and remember, your personal credit records, as well as those of your business, will come into play during the decision-making process.

Our guide below can help you to understand your options a little better and find the right commercial mortgage for your specific business requirements.

Choosing between commercial mortgages

When comparing commercial mortgages, there are a number of factors that you’ll need to consider:

• How much you can borrow: Lenders will decide how much to lend you based on criteria such as your deposit amount, your credit record and business finances and the value of the property you are purchasing. There will be a loan-to-value limit for each commercial mortgage product available and you’ll need to work out how much you need to borrow based on the value of the property you want to purchase and the value of your cash deposit
• How long you can borrow for: Along with the loan amount, the loan term you are offered will also vary depending on the provider as well as your personal circumstances. Generally, commercial mortgage loan terms range from around 3 years to 25 years.
• Interest rate: This is an area where commercial mortgages often differ from residential mortgages. While residential mortgages will often offer a set interest rate, it’s less easy to get a concrete interest rate offer from a commercial mortgage provider until you are further into the application process.
• Type of mortgage: Typically, your rate will be quoted as a percentage over LIBOR, which is what would be called a tracker mortgage in residential purchasing terms. Although fixed-rate mortgages are available, they can sometimes come with higher interest rates, and might only be accessed on properties worth less than £500,000.
• Other costs: Very often with a commercial mortgage, there will be other costs involved with taking out the mortgage, on top of the interest payment. Arrangement fees are often applicable, along with early repayment fees, valuation fees and legal fees. Some lenders will also want money to cover the work they do if you do not accept the offer given. In these circumstances, you may be charged a commitment fee which is payable with your application and is non-refundable. Most arrangement fees are then lumped into the loan itself and usually come in at about 1-2% of the total loan amount.

Meeting commercial mortgage lending criteria

When choosing a commercial mortgage, much of your decision making may be determined by each provider’s lending criteria. It makes sense to assume that a lender will want to carry out a detailed check of your business and personal credit records to assess your creditworthiness. They will also want to check your business accounts to determine that your finances are stable and that you can afford the repayments.

As well as checking your finances, the lender is likely to want to value the property you are purchasing to ensure it is worth enough to cover the cost of the loan if you cannot afford the repayments.

If you have a large deposit to put forward, you may find it easier to secure a commercial mortgage from a lender and rates may also be lower than if you require a higher loan-to-value. This is something to take into account when choosing between commercial mortgages. It’s important to note that, as with a residential mortgage, you risk losing the property if you fail to keep up with scheduled repayments.

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