How To Get The Best Commercial Mortgage Rates

Find the best commercial mortgage rates.

A businesses premises is important for any company, and there are number of questions which you need to consider. Including whether to purchase the premises, arrange for them to be constructed, or whether just to rent. Renting is generally considered to be expensive, although the sale of commercial property typically takes longer than the residential market. A commercial mortgage can offer a third option, which enables the business to not have to cover the full cost of project up front, but at the same time gaining an asset on its balance sheet over the longer term.

Generally the rates of finance which are available to companies will be low, this is no more true than at the current time with Bank of England base rate at an all time low. Normally a lender will charge a margin over the base rate, which will depend on the quality of the proposal, and how aggressively the lender is marketing themselves.

There are some minor differences between commercial and residential mortgages. Those who have previously purchase property through a residential mortgage will be surprised in the similarities. Generally there will be a few more questions around the performance of the business and how the proposed repayments will be met, but aside from that it should be a fairly straightforward process.
As with residential mortgages, it is possible to secure a "fixed rate" of interest. Lenders will offer this service, although it is probably fair to say that this type of product will normally attract a premium in the market. This is generally seen as the most sensible way to price this, as then the business will not be exposed to the variations of the rates of interest, and will have a fixed cost for which it has to account. The variable approach, which is generally the more common in the UK.

Another factor which should be considered in relation to a commercial mortgage, is the fact that any interest which is paid would be possible to be deductable against taxation. It is recommended that you should consult with a taxation consultant prior to engaging with a transaction of this nature, to make sure that you are structuring the purchase in the most efficient manner.

In all mortgages, the lender takes a charge over the property, which would only be exercised in the event that the lender fails to meet the payments of the mortgage. It may be possible for a business to secure further loans and charges against a property depending on the level of equity which they have within it.

This leads us on to the required levels of deposit that lenders like to see. At the time of writing, for a general commercial mortgage, most lenders will require a 35% deposit, i.e. 65% Loan To Value (LTV), meaning that the business as to fund 35% of the property purchase, plus fees, which depending on the lender may be up to a further 5%. Clearly there are significant advantages to a business to owning their own property, as this will over the longer term improve the businesses outlook (providing it is possible to meet the required payments).

If you are a property investor, there are a variety of different types of mortgages, which are specific for certain types of purchase. So if you are looking at a development project, or a series of buy to let purchases each of the different types of proposal will attract different measures that have to be met. Please visit our website at www.commercial-mortgages-broker.co.uk for further details on these areas.

The application process will not normally be too onerous, although lenders credit policies have tightened, post credit crunch. Therefore you need to be fully aware of what a lender will look for to meet the required criteria. They will want to learn about the business which is due to meet the repayments. How the business is trading, how the business has been affected by the economic downturn, who are the key members of the business, and there will normally be some analysis which is conducted on the accounts of the company.

This will then generate what's known in the business as a Probability of Default (PD) rating. i.e. The likely-hood that a particular client is likely to default against the payments. Clearly because of the reasonable level of equity which the investor is required to front (the 35%), this improves the lenders position significantly. Finally there will be a matrix of charges which are used for the PD rating which is achieved.

This will determine the rate of interest which will be applicable for your business. Some lenders will be more exposed to the commercial property market than others, and therefore may have more or less of an appetite depending on their exposure. As with a residential mortgage, it is important to shop around to understand who is genuinely offering the best rates at the time which you are looking. A good way to do this is by using a commercial mortgage broker, who's job it will be to assemble the deal, and then utilising their relationships with the various lenders will be to find the best deal on the market.

Selecting a lender for a commercial mortgage, requires some thought and knowledge of the market, having worked within the financial services industry for over 10 years, latterly providing commercial mortgages to clients, our team have the very best in experience in structuring commercial mortgages.