Commercial mortgages
Commercial mortgages are a sector that many advisers do not get involved in due to their perceived complex and time consuming nature. In reality, the majority of them are no different than a normal mortgage.
Many business owners, or investors go to their Banks to see what deal they can get and do not shop around due to the history between the Bank Manager and the client, which has normally been built up over years.
In reality, people are losing out on getting the better deals than they could potentially have, due to perceived friendly relationships, which are in many cases, just bad business decisions and more expensive for the client than they should be.
Many Banks will loan up to a maximum of 80% loan to value and want additional security (charge over the main residence), or additional insurance products to accompany the loan. This is not necessarily the case with other lenders in the marketplace. An independent view may present other options to you and mean that you do not have to have the Bank’s noose around your neck.
The sectors that are operated in are quite diverse for Commercial mortgages, covering:
• Owner Occupied premises – Mortgage is raised against the business value and valuation of the property, or against the bricks and mortar value of the property.
•Investment properties – properties to invest in singularly, or on a syndicate basis
•Development Finance – Mortgages sought to fund developments (i.e., conversions, new build developments, refurbishments)
•SSAS and SIPP loans - for purchasing commercial properties with pension funds.
•Sub Prime commercial mortgages – for those who have had arrears, County Court Judgements (CCJs), late payments,
bankruptcies etc.
•Going concern Businesses - Public Houses, Hotels, Care Homes, Post Offices, Day Nurseries.
Lenders will require the Surveyor to value the bricks and mortar on a current status and standing, so they have a basis to lend against. Commercial premises that are normally used for bricks and mortar valuations are offices, shops and professional practice premises (Doctors, Dentists, Solicitors, Accountants).
| Type of Valuation | Criteria for commercial mortgages |
| Bricks and Mortar valuation | Up to 85% of the value (status and non-status) and up to 100% (sometimes more) for professional practice premises (around 1% over LIBOR) |
| Investment Properties | Less reliant on property value and heavily reliant on the quality of tenant, the lease term and rent receivable. |
| Development Finance | Typically 70% to 75% of site value and 70% to 75% of development costs. Funds payable in stage payments with interest roll up available. Terms dependent on experience of client and size of project. |
| Going concern businesses | 75% of the going concern (goodwill) and up to 100% for the bricks and mortar value. In very strong cases (Care Homes, Day Nurseries), can be 80% of the going concern, but goodwill has to be assessed by Surveyor. |
Where many commercial mortgages fall down is when the Surveyor has to provide a current valuation and then a valuation after works have been completed (as lenders can work off a percentage of the completed figure for lending purposes). Many clients think that by spending £100,000 on refurbishment, the property value will increase by £100,000+. This is generally not the case and an unrealistic expectation in many instances. The future valuation has to be realistic from the start, otherwise it can be a waste of time and money. Therefore full research and preparation is always best policy.
One thing to be aware of is that the fees can be higher than a normal residential mortgage as they require business valuations by a more in depth valuation by a Surveyor (not required on a residential mortgage). Also VAT is applicable to many commercial property purchases.
The VAT can be financed on a short term loan, same as bridging finance, but without the extortionate fees. When the VAT is claimed back after the purchase has completed (if you are VAT registered), this loan can then be repaid.
Mortgage repayments are normally capital and interest, but an interest only period can be negotiated (3 months to 3 years, depending on the lender) to aid cashflow in the early stages.
To highlight the importance of obtaining impartial independent advice on this matter.
One lender in the marketplace assesses the viability of the commercial mortgage like a residential mortgage by the worthiness of the individual applicants. They are happy to lend up to 85% of the value of the property (possibly even up to 100%). They also offer up to a 30 year term, the option to self certify your income (for those that have trouble proving it) and up to 3 years interest only payments, which can help with obtaining the relevant finance and budgeting thereafter.
If you are looking for commercial finance, or to remortgage to a better deal, independent advice should be sought to ensure that you are getting the best deal available.
Some types of commercial mortgages are not regulated by the Financial Services Authority.
It's time to get your Bristol mortgage sorted
Charles Antony
18 Downs Park East
Westbury Park
Bristol BS6 7QD
United Kingdom
T: +44 (0) 117 962 0258
F: +44 (0) 117 962 0258
This website is the website for Charles Antony, an Appointed Representative of the Whitechurch Network Limited, which is authorised and regulated by the Financial Service Authority.
Your home may be at risk if you do not keep up payments on a mortgage or other loan secured on it.
