MDM Financial Services

What is a Commercial Mortgage?

Commercial mortgage is a financial arrangement for the purchase or re-mortgaging of a property. It is mainly for commercial or business use & can be a trading business place, or another form of an investment also known as commercial buy to let mortgage. We can source funding for any size of business based in the UK, on most competitive rates/terms to help your business grow & develop.

A business mortgage is usually a medium to long term funding and that would be up to 25 years. We can arrange commercial mortgages up to 70-75% of the value of your property. Loan to Value (LTV) ratio, is the amount that you can borrow against your property based on valuation obtained by the lender through their appointed property surveyor.

Basic features of a commercial mortgage

A business mortgage plan differs from a regular mortgage in the following ways:

▶ Commercial mortgages usually carry a higher interest rate compared to regular home mortgages as these are considered higher-risk to lenders.

▶ Commercial mortgages generally offer better interest rates as compared to regular business loans as these require property as collateral.

How interest on a commercial mortgage is paid?

▶ Interest on commercial mortgages are normally paid at a variable rate, however fixed interest rates are also available. The interest rates are quoted as x% over base or LIBOR, and in terms of a residential mortgage this would be called a tracker mortgage.

▶ Fixed rate mortgages are available, where the lender takes the rate risk themselves, in some instances these might be advantageous for borrowers.

Few factors to consider

You should carefully consider different options before applying for a commercial mortgage, most important factor is to ensure the affordability of the monthly payments.

▶ For any reason if you have a bad credit rating you can still apply for the mortgage, but in such cases you are likely to pay a higher interest rate to cover up for the risk the lenders are taking.

▶ Mortgages (commercial or residencial) are secured loans against the property used as a collateral by the lender. In case of default, you might lose the ownership of your property.

▶ Usually the commercial mortgages require higher deposit (25% to 40%), it’s prudent to ensure that you can comfortably pay the initial deposit and the monthly repayments.

Eligibility and criteria

Lenders have their own criteria and eligibility checks which usually includes:

To evaluate the financial health of your company, the lenders usually analyse the cash flow, any debts you may owe, the projected income and any other financial commitments of the business to assess whether you can afford the initial deposit (25% - 40%) and the serviceability of the loan.

In addition to the above analysis, the lenders also consider the rental income which can contribute towards the cash flow of the company.

For further information, please contact us.
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