Acquistions advisory

What Is a Commercial Mortgage?

A commercial mortgage is a type of mortgage or loan that’s secured on a commercial property that isn’t your place of residence.

You can use a commercial mortgage to buy an existing property or a new build. Or you might want to buy an entire business, not just the property itself.

 Because most commercial mortgages typically only offer up to 70% of the total value of the property, the lender relies on the business to fund the balance to complete the purchase. This is often a substantial amount and can significantly increase the ‘own funds’ required to complete a business purchase involving a property.

The loan term can vary from 5 to 40 years. It’s a big financial commitment, so you need to understand what you want from your commercial mortgage and what your mortgage lender wants from you.
Interest rates are typically higher than with residential mortgages, as the lending is seen to be higher risk. Typically, you will need to find a deposit of at least 30%.
Your credit history and the credit history of any business you wish to purchase will play a big part in whether your application is accepted. However, it isn't always the single focus that is considered; you will also need to provide a comprehensive picture of your company including projections and a business plan.
A land tax that is payable on all properties and the rate varies, but for a £500,000 property the amount you currently pay is £20,000.
Variable rates are set against the Bank of England base rates and will vary depending on the set rate at the time. Fixed rates can be set for a specified period (up to 5 years) offering level repayments which can be calculated into business projections.
As with a residential mortgage, you should expect to pay a conveyancing (legal) fee, arrangement fee, a valuation fee, and an administration charge.
The interest repayments on your commercial mortgage are tax-deductible.
If your target business already owns, or has a modest mortgage on its premises, re-mortgaging it can allow you to release cash with which to fund your purchase