27th February 2024
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Commercial Mortgages
Mortgage Lane are award winning brokers that specialise in mortgages for commercial properties. If you are a business owner, or an investor looking for mortgage options on commercial properties, we can help simplify the path to securing a Commercial Mortgage. Even if you’re venturing into this space for the first time, rest assured, no prior experience is required, plus you don’t need to own a home to qualify.
PROCESS BREAKDOWN
1
Information gathering and advice
The first process in your commercial mortgage application will be gathering or updating information in relation to the property, tenants, or yourself. Once this has been established your broker will make a product recommendation.
2
Credit approval
Once you are satisfied with the product recommended and have confirmed to proceed, this will usually be submitted the same day to give you a decision, until this point there is still nothing to pay! As long as the Agreement in Principle (AIP) was approved, we can move to application stage where fees become payable.
3
Application, valuation & underwrite
Once the application is submitted, your valuation will be booked in and most of the time (depending on the lender) usually completed once your initial underwriting has been completed. Once the valuation is returned, if acceptable, the lender would then look to make a formal offer. You can then move to legal stage.
4
Offer and completion
Once you have had your mortgage offer, you will require adequate legal advice and then once you’re happy, your solicitor can draw this down once the legal requirements are satisfied. Your broker at Mortgage Lane will always be checking in on the application post offer, so we are chasing for you too!
Types of Commercial Mortgages
We assist both business owners and investors with Commercial Mortgage advice. Below we explain all the types of variations you might come across as well as information on different ownership types and how this can impact your mortgage options.
Hotel Mortgages
At Mortgage Lane, we are seasoned experts in arranging hotel mortgages, offering specialised services tailored to the hospitality industry. A Commercial Mortgage for a hotel is a financial solution designed for businesses looking to purchase, refinance, or renovate hotel properties. These mortgages typically feature extended terms, often up to 30 years, to accommodate the unique financial timelines of hotel operations.
Interest rates for commercial hotel mortgages are usually distinct from residential mortgages, reflecting the specific risks and opportunities in the hospitality sector. Borrowers are often required to provide a Personal Guarantee (PG), backed by a good credit history and equity. Additionally, comprehensive financial documentation is needed for underwriting, demonstrating the borrower’s capability to repay the loan. This includes detailed business plans, tax returns, and cash flow projections specific to the hotel industry.
Lenders will also conduct a thorough valuation appraisal of the hotel property to ensure that its value sufficiently covers the loan amount at the desired Loan to Value (LTV) ratio. It’s important to note that commercial mortgages for hotels cater to a range of business entities, including sole traders, partnerships, limited companies, and even charities, though lender requirements may vary.
With Mortgage Lane, your journey to secure a hotel mortgage is supported by our deep understanding of the hospitality industry’s dynamics. Our team is committed to providing personalised advice and solutions that align with your hotel’s financial goals and operational needs.
Our understanding of Hotel mortgages also extends to Guesthouses and Aparthotels that may have a lessor staffing presence but maintain the same short term accommodation revenue.
With hotels, we work with commercial mortgage lenders that do not always require experience, therefore if you are thinking of stepping into this sector, speak to us at Mortgage Lane to uncover your mortgage options.
Mortgages for Farms
Farm mortgages are a special type of commercial mortgage used to finance the purchase of farmland, agricultural buildings, and other assets related to farming activities. Usually farm mortgage products are with building societies and high street banks, but some private lenders offer them as well. Farm mortgages are often flexible, offering longer loan terms, higher loan-to-value ratios, and lower interest rates than some commercial mortgages. They may also offer additional tax benefits, such as capital gains tax relief. It is important to note that farm mortgages may not be available in all areas, so borrowers should speak to their local lender to determine their eligibility as lenders in this arena are usually focused on specific area demographic. Experience may be required to get a competitive product to fund your farm purchase.
Commercial Mortgage lenders in this space have relaxed criteria surrounding acreage which can be good news for farm owners. Our lenders will also base their decision on any potential agricultural ties and how this will impact the property and the applicants.
Equestrian Mortgages
At Mortgage Lane, we are intimately familiar with the varied nuances of the equestrian world. Whether your goal is use a commercial mortgage to acquire land, equestrian-tied properties, or embark on land-based business endeavours, our experienced team is here to guide you.
Our expertise encompasses a broad range of equestrian establishments, from competition and livery yards to the vibrant spheres of polo, racing, and training centres. For those passionate about establishing cross country courses, initiating riding schools, or setting up studs, we’re ready to support your ambitions.
Beyond acquisitions, we’re proficient in areas like re-mortgaging, consolidating existing debts to bolster business growth, managing buy-outs in partnership transitions, and assisting in the expansion or enhancement of equine facilities.
Whether you’re envisioning building an on-site home or in need of bridging loans, Mortgage Lane remains your steadfast ally in every phase of your equestrian journey.
Lenders with the best mortgage rates may of course require 1-3 years accounts, which will give an EBITDA calculator on your maximum loan. Some lenders will lend 5x EBITA for example.
Having accounts for your business, or a business you are looking to buy will give you more mortgage options as opposed to without.
Carehome Mortgages
At Mortgage Lane we are experts in arranging mortgages for the Care Sector.
A Commercial Mortgage for a Care Home is a type of loan that allows businesses to purchase, refinance, or potentially renovate a care home property. Commercial mortgages for care homes typically offer a longer term, up to 30 years.
A borrower may be required to provide CQC or CIW reports to evidence good audits, Care homes typically house vulnerable tenants, in this instance a lender would be concerned about the vulnerability, in repossession this can be very risky to a lender who might receive bad press in the event of receivership of the loan. Good reporting can give a lender confidence in their concern around the vulnerability of the occupants. Experience will also be considered in a lending decision and usually is required to obtain tier 1 rates.
The interest rate for a commercial mortgage for a care home is usually higher than a residential mortgage, and the borrower providing a Personal Guarantee (PG) usually must have a good credit history, equity and provide financials to the lender for underwriting to demonstrate their ability to pay back the loan.
The lender will also typically require a valuation appraisal of the property to be sure that the value of the property is enough to cover the loan amount at the chosen gearing or Loan to Value (LTV). Additionally, they will require documentation such as a business plan, tax returns, and cash flow projections. Generally, commercial mortgages for care homes are available to sole traders, partnerships, limited companies, and charities. However, the specific requirements for each lender may vary.
Pub Mortgages
A commercial mortgage for a public house or pub is a loan that is specifically designed to for business owners or investors to purchase, or refinance a public house. Usually secured against the public house and can be used to fund the purchase, refurbishment or expansion of a pub. Interest rates for commercial mortgages for public houses vary depending on the lenders and the type of loan, usually priced higher with a higher lending risk in terms of reputation to the lender in the event of repossession. Generally, lenders will offer more competitive rates for more established pubs, compared to pubs that are newly built or require extensive refurbishment. Lenders will also consider other factors such as the size of the loan, the applicant’s credit history, the location of the pub and its opening times. These products can be interest only or capital repayment.
As pubs carry additional risk, potentially with lender reputation, there are not always so many products. Mortgage Lane are connected with lenders that have a relaxed criteria for eligible borrowers, with lower minimum loan sizes, not requiring experience or good trading accounts.
This thread is not legal or tax advice, if anyone is looking to do anything noted in the contents, we recommend you speak with a qualified individual.
Properties Owned in an LLP
With many landlords incorporating from a personally owned partnership to tackle their tax needs against the clause 24 landlord changes, many are incorporating into LLP’s. We advise our applicants to get tax advice before proceeding with their ownership type. We work with many lenders that allow for lending to LLP applications.
Additionally if you are incorporating your portfolio using incorporation relief, we recommend to speak to a mortgage advisor to make sure that your plans align with lending.
Commercial property mortgages understood
Mortgage Lane are one of many closed lender panels for exclusive product ranges, which makes us able to achieve the best products for your direct with the lender. This can reduce the chain of communication and help execute a speedy completion. From lenders not requiring experience, to those happy with complex ownership structures we are experienced in a diverse range of commercial property transactions. With Commercial products being so diverse with options for Capital Repayment and Interest Only, speak to one of our expert brokers to discuss your best funding avenue. Specialist sectors with Mortgage Lane Our lenders accept some of the most specialist commercial sector types, these can be without sector experience. Some Commercial property sectors carry additional risk, maybe due to volatility or lack of demand so it is important you work with a broker that understands which lenders approve of those sectors.Specialist sectors we assist:
- Carehomes
- Hotels
- Offices
- Healthcare
- Retail
- Light industrial
- Farms
- Petrol stations
- Pubs
TRY OUR COMMERCIAL MORTGAGE CALCULATOR
ANSWERS TO COMMON QUESTIONS AND QUERIES ABOUT COMMERCIAL PROPERTY MORTGAGES
How is affordability calculated on Commercial mortgages?
For investors Commercial mortgage lenders will use the lease income of the security property, which is the property you are buying or remortgaging.
For business owners Commercial mortgage lenders will use the NET PROFIT of the security property, which is the property you are buying or remortgaging. Using the EBITDA method, the figure used may be adding in or deducting parts of your accounts that will change upon completion, such as swapping your rent against your new mortgage payment.
If you’re purchasing a property as an individual, the financial stress test applied by lenders might be more stringent compared to basic rate taxpayers. For instance, a basic rate taxpayer could be assessed at 125%, whereas a higher rate taxpayer might be evaluated at 145%. For five-year fixed mortgages, lenders often use the pay rate of the product for stress testing, say 5.89%. As an example, for a basic rate taxpayer earning £600 per month in rent, the calculation would be: £600 x 12 / 1.25 / 0.0589, resulting in a maximum loan of £97,792.
What is an interest only Commercial mortgage?
An interest only Commercial mortgage is a mortgage, where you will only repay the interest on the principle amount borrowed. This can be useful for investors on commercial mortgages, whereby they build this into their cashflow.
Some options are capital repayment by design, therefore if you do require Interest Only it is best to let your broker know early on so they are able to better plan your options and of course manage your expectations.
What is a Commercial mortgage?
A Commercial mortgage is used to purchase a commercial property that you intend to occupy or rent out. Additionally commercial mortgages can be used for residential properties that have a commercial use such as HMOs and Social housing property. The commercial mortgage will be secured on the commercial property and underwritten against applicants or directors.
What are the advantages of using interest only mortgages with Commercial Property
Some investors may be making 15-25% returns on money they are investing into property, therefore having the option to defer capital payments can be advantageous to cash flow. Additionally commercial property owners may be able to ringfence their property income against clause 24, allowing interest payments to be deducted from profits before taxation. Some of the cheaper Commercial mortgage options may be capital repayment, so if you are looking to retain cash flow you will need to request your interest only options.
This is not legal or tax advice, please speak to a qualified individual.
How do I get a Commercial mortgage with bad credit?
Just like standard mortgages, there are also Commercial mortgage lenders that allow for applicants with adverse credit. So whether you have missed payments, CCJs, defaults or even an IVA, we can still source you with a suitable HMO lender. If you have discharged from bankruptcy then your options will become better after 3 years and also subsequently 6 years.
Is a Commercial Mortgage Feasible Post-Retirement?
Age shouldn’t be a barrier! Contemplating a commercial mortgage post-retirement? You’re in good company. Numerous lenders in this domain are age-flexible. Contact us to pinpoint the best option for your post-retirement plans!
What Commercial Mortgages are available to business owners?
Entrepreneurs eyeing mixed-use properties should mull over a commercial mortgage. Eligibility is contingent on financial stability, creditworthiness, and business performance. Engaging a commercial mortgage specialist is prudent. Lenders typically gauge loan offerings against your EBITDA, ensuring your venture is profitably robust.
What do lenders require for a commercial mortgage?
Application prerequisites vary among lenders, but frequently sought documentation includes:
Personal bank statements (typically covering 3-6 months).
Business financial reports (usually for the past 3-6 months).
For those occupying their businesses, two-year account summaries to validate business profitability.
Details on income and expenses.
Can I get a commercial mortgage using SASS funds as a deposit?
Yes.
As long as your SASS provider has permitted the intension of the funds, we work with mortgage lenders that recognise the source of these funds. Our lenders would need to see the trust documents associated with the SASS pension.
Can I purchase a property in the name of my pension?
Yes
We work with lenders that have designed products tailored to lend to a SASS or a SIPP pension scheme that holds property. It is important your strategy and plans coincide with the pension providers rule and guidelines.
Can I get a buy to let mortgage on a Commercial property?
No.
Buy to let mortgage lender will only lend against residential property. If you have a commercial property, you will need to apply for a commercial mortgage.
Can I use a Commercial mortgage if I am buying at auction?
Yes.
However, it’s important to note that while these financing options can be attractive for profitable projects, they may not always be suitable. Commercial Mortgages carry the requirement for searches at legals, depending on the local council can take up to 8 weeks. Therefore, our auction clients tend to opt for bridging finance in the first instance unless of course buying at modern action where you may have 56 days to complete rather than the standard 28.
It is important you get your solicitor to escalate your case via a letter to the bank, passed on by your brokers to skip the waiting queues if you have a genuine urgency such as auction completion dates.
Where do you broker Commercial mortgages in the UK?
We assist our clients with Commercial mortgages in England, Wales, Scotland and Northen Ireland.
What income do I need to get a Commercial mortgage?
Whilst some Commercial mortgage lenders do enforce a minimum income requirement (often £25,000), the majority of lenders do not have a minimum income requirement, as long as some level of an income can be evidenced.
What is a day one Commercial mortgage?
A “day one mortgage” allows you to remortgage your property without the traditional waiting period. Historically, many commercial lenders adhered to a “six month rule”, which posed challenges, particularly for investors employing the Buy, Refurb, and Refinance (BRR) strategy. If you’re an investor looking to capitalise on this approach, the good news is you no longer have to wait 6 months to remortgage the property based on its updated post-refurbishment valuation!
How much deposit will I need for a Commercial mortgage?
Commercial mortgage lenders will usually want at least 30-25% of the property’s value because of the increased risks linked with these properties. In simple terms, they’re typically willing to lend you up to 75% of what the property is worth. Whatever the maximum loan to value is, the property will need to “stress up” to be eligible for the loan size and therefore it will need to be affordable on its producing rental income.
Can I overpay on my interest only Commercial mortgage
Yes, some lenders offer a 10% overpayment facility, per annum.
This means that if your principal loan was £125,000 then you could repay £12,500 per annum as an overpayment without incurring a penalty within your fixed term.
However, it is important to note that many commercial mortgage lenders are stripping this from their product ranges, so it is always worth checking to avoid paying exit fees on amounts repaid.
High Street or Specialist Lenders for Commercial Mortgages?
Deciding between high street and specialist lenders for a commercial mortgage? Established commercial mortgages often find better rates with High Street lenders. Yet, these lenders usually expect more experience. Conversely, specialist lenders might have more lenient experience prerequisites, and their rates have grown competitive over the years.
Alternatives to Mortgages for Commercial Ventures?
Beyond standard commercial mortgages, consider leveraging equity from current assets, swift bridging loans, or development finance – especially if rejuvenating an older commercial site. Need a business loan? We’re here to help!
What are floor space and valuation split requirements for commercial mortgages?
Floor space %: Some lenders might have a minimum percentage that they would like to be residential, for instance, 60%. Valuation split between residential and commercial: Certain lenders might prefer a valuation split ratio of 50/50. Some commercial properties may have only one access point, presenting a more intricate lending scenario. Ideally, properties should have two entrances, but we offer lending solutions for both configurations. For those new to commercial mortgages or non-homeowners, options might be limited. The specific use of the commercial unit(s) can also influence lending options, as the commercial realm contains various sub-sectors. Not all lenders might cater to every sub-sector, such as gyms or car garages. Hence, providing comprehensive information to your broker is crucial to avoid potential declines.
Who provides commercial mortgages?
Many renowned high-street banks cater to commercial mortgages. Yet, they often uphold strict standards, mostly favouring straightforward cases. Challenger banks, albeit less renowned, stand out with their niche prowess.
Prominent names on our roster include Barclays, Lloyds, Nat West, and Yorkshire Building Society. We also partner with esteemed commercial mortgage lenders like Allica Bank, Interbay Commercial, Recognise Bank, Shawbrook, Reliance Bank, and Redwood Bank.
Commercial property mortgages with low tenant lease term?
Mortgage Lane is proficient in securing commercial property mortgages, even when the tenant’s lease duration is shorter than the mortgage term. We specialize in finding lending options for such scenarios, understanding the nuances of aligning tenant lease lengths with mortgage terms.
Addressing Commercial Mortgages with Short-Term Leases
Finding Lending Solutions for Short Lease Terms: Yes, it is possible to obtain commercial property mortgages when the tenant’s lease is shorter than the mortgage term. While lenders generally favor situations where the lease term aligns with or exceeds the mortgage term, Mortgage Lane can identify lenders willing to consider properties with shorter tenant leases, sometimes with specific conditions.
Mortgage Lane’s Expertise in Commercial Mortgages
Navigating Lease Term Complexities: Our expertise lies in understanding the challenges and risks associated with shorter tenant leases in commercial mortgages. We work diligently to find solutions that address these unique circumstances.
Tailored Mortgage Assistance: We provide tailored guidance to investors looking to finance commercial properties with shorter tenant leases, ensuring they have access to suitable mortgage options
Professional Advice and Support
Expert Guidance from Mortgage Lane: While we offer expert advice in obtaining commercial property mortgages under these conditions, we remind clients of the importance of seeking legal, tax, or valuation advice from qualified professionals. This is especially crucial when considering lease-related matters, such as extensions or renewals.
Informed Investment Decisions: Our goal at Mortgage Lane is to empower investors to make informed decisions when acquiring commercial property mortgages with shorter tenant leases. We are committed to guiding clients through the complexities of these mortgage scenarios, ensuring they have the knowledge and resources for successful property investment.
Expected rates for a commercial mortgage?
Rates for commercial mortgages usually exceed those of residential ones due to perceived risks. Expect rates between 6% and 14%. It’s rare for us not to pinpoint a suitable lender, even at this rate spectrum’s upper echelon.
Can First time buyers get a Commercial mortgage?
Yes.
Some lenders who offer Commercial mortgages to first time buyers may limit the loan size to their maximum residential mortgage affordability. Although others would not reduce the loan size, it is important to understand the commercial options prior to purchasing commitments if you are not a home owner, as the majority of lenders will require ownership experience.
Of course applicants buying first on a bridge are not first time buyers when remortgaging.
What entities can take a Commercial mortgage?
We arrange cost-effective Commercial mortgages for:
- Individuals
- Special Purchase Vehicles/Limited Companies
- Limited Liability Partnerships (LLP)
- Trading companies
- Charities
- On/Offshore Trusts
Are Commercial mortgages regulated?
It is important to note that Commercial mortgages are not covered by the Financial Services Compensation Scheme, so borrowers should ensure they are dealing with a reputable lender.
Learn more about Commercial Property Mortgages
There is no one-size fits all solution for commercial property mortgages, read more about the different financing options available to you in our blogs.
BEGIN YOUR COMMERCIAL MORTGAGE JOURNEY WITH US TODAY
Let us know about your enquiry and one of the team at Mortgage Lane will be in contact to assist!