What is a commercial mortgage?
A commercial mortgage is any mortgage held on a property in which you do not live.
Not only can it provide an asset for your business, it can also provide security for your family.
It’s much more expensive to buy commercial property, which means that many businesses simply have no choice but to lease. However, once you have climbed onto the first rung of the commercial property ladder, there is potential profit to be made.
There are two types of commercial mortgage:
- A business mortgage – also known as an owner-occupier mortgage, this is suitable if you wish to purchase a premises for your company to operate from
- A commercial investment mortgage – required when you wish to purchase a non-residential property to rent out to another business
Fixed rate commercial mortgages are available, usually over a maximum term of five years. You are likely to have to pay a higher rate of interest and you would not benefit if rates were to fall.
Interest-only commercial mortgages are available, but you must be able to satisfy the lender that you will be able to pay the balance at the end of the mortgage term.
How do commercial mortgages work?
Commercial mortgages require a higher deposit than residential mortgages – usually 20% – 30% of the commercial property price. The larger the deposit, the more likely the business owner is to achieve a better deal.
The length of the term will vary depending on the needs of the business, although most mortgage lenders will not lend for a term less than three years. Commercial mortgages can be arranged for up to 25 years.
As a commercial mortgage is regarded as higher risk than a residential mortgage, the interest rate will be higher.
Can any business apply for a commercial mortgage?
Commercial mortgages are available for almost any type of business, even those that are new.
To assess affordability, a mortgage lender will wish to review the business accounts and profit projections, plus assess the value of the commercial property.