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 Money
Page > Business
Services > Mortgages - UK Guide
 In a
nutshell
A commercial mortgage allows you to take
out a loan to buy property or land for business
purposes.
Best
Mortgage For
People that need to buy property for
business use. A commercial mortgage can also be used as an
alternative to a domestic buy to let mortgage. You can use it
to buy an existing business, to set up a property to run a new
business, to develop business property, to use as an
investment or to buy land for business development, for
example.
Mortgage
Type
Although a different product to a domestic
mortgage, a commercial mortgage runs on many of the same
principles. So, you can access repayment or interest-only
options for example. You may also be able to negotiate special
repayment options into these two types of deal. For example,
you can arrange to take out a repayment commercial mortgage
where you pay back a smaller amount for most of the mortgage
term with a larger lump sum payment due at the end. You'll
also be able to find a range of offers such as fixed rates and
special discounted deals depending on the provider you
choose.
Typical
Amount to borrow
There is no industry standard
here - you'll get different answers from different lenders
depending on their deals and what you want the money for. Most
lenders won't impose an upper limit on commercial mortgages
but do impose lower limits. So, for example, one lender may
opt not to give you a mortgage if you want to borrow less than
£100,000 and another will give you one as long as you borrow
more than £25,000.
Deposit
This can vary
widely depending on the lender you choose and the reason why
you need the mortgage in the first place. It tends to average
out at a deposit of at least 20%. You will find commercial
lenders willing to take as little as 5% deposit but you'll
probably have to pay higher rates to get that kind of
deal.
Advantages
The major
advantage with a commercial mortgage is that it is specially
designed for business use - and you can, to a certain extent,
tailor the product you buy to suit your needs. You will also
enjoy specific business tax advantages - for example, your
interest payments will be made with pre-tax income and you can
offset them against tax.
You can often take advantage
of special payment holiday deals with some commercial lenders
where you can waive payments on the capital you've borrowed,
for example, for up to two years. This can be extremely
helpful to the new business. It's quite common to use a broker
to arrange a commercial mortgage and this can work to your
advantage. You will have to pay a broker's fee here but
they'll be able to help you get the best deals which can
particularly useful if you are new to this sector.
What to
look out for
Certain lenders will only arrange
commercial mortgages through brokers - so you may find
yourself having to find brokerage fees on top before you can
arrange the mortgage you want. You might actually choose to
use a broker here - despite the additional fee - as many
lenders don't automatically advertise their rates in the way
that domestic lenders do. Using a broker can help you get the
best deal. And, some lenders set limits on their borrowing
terms - so you may find that you can only take out a
commercial mortgage for 15 or 20 years rather than the 25
offered by domestic mortgage lenders. Conversely, other
lenders will take a more enlightened view and may offer 25+
years. You will have to find your own legal and arrangement
fees here in most cases as few commercial lenders will waive
or part-fund these costs. One of the big advantages with a
commercial mortgage is that you'll often find that lenders
won't set limits on the amounts you can borrow. So, for
example, you can also extend your loan to cover more than just
your property costs - which can be valuable if you're setting
up in a new business. Conversely, you may also find that
commercial mortgage lenders set quite high lower levels on
borrowing limits - so you may need to look around a little if
you don't need to raise that much money. One thing to try and
avoid is a commercial deal that will cost you money if you
want to make changes to it. For example, you should avoid
early redemption fees and penalty clauses wherever possible.
And, you also need to be aware of your own liability before
you take out a commercial mortgage - if you're a sole trader,
for example, then you could be held liable for the loan if
your company goes down.
Alternatives
If
you're looking to buy a property to let then you can also
consider domestic buy to let mortgages. Commercial mortgages
do tend to be the best option for all other business purposes.
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