Commercial mortgages generally take over where business loans finish. Business loans up to £25,000 are unsecured, but for larger amounts lenders need security in order to reduce the risk to themselves. Because of the legal and administrative costs of securing against a commercial property, it is considered uneconomic to borrow under £50,000 this way, and some lenders have a minimum of £75,000 or more.
Similar to residential mortgages, commercial mortgages see lenders providing a percentage of purchase costs in return for repayment over an agreed term, plus interest. Notable differences to a commercial mortgage are:
Arrangement fees of between 1-2% are generally applied to commercial mortgages upon completion, however some lenders also charge a commitment fee, payable with the formal application covering preparatory work.
Lenders against commercial mortgages typically require a 20-30 page valuation report to give application approval, which can cost upwards of £500 for the most simple of valuation quotations. This fee is payable to the lender after an initial indicative offer has been accepted.
Dependant on size and complexity, legal fees will vary greatly but generally begin around £500. The purchaser is required to pay the legal fees of the buyer and the lender, but savings in cost and time can be made where it is agreed that both parties will use different partners in the same firm for representation.
Commercial mortgages are aimed at those who own, or who are looking to purchase business premises. They are typically used for freehold purchases but some lenders will offer commercial mortgages against leasehold properties if there are 70 years plus remaining on the lease.
Being a longer term financial solution, commercial mortgages range typically from 3 to 25 years, however shorter term finance is also available in the form of bridging loans or property development loans, which offer finance with terms between a few weeks up to 24 months.
Generally speaking, commercial mortgages are offered up to 70-75% of the full property valuation, with the remaining balance being paid in cash by the buyer. Most commercial mortgages are offered at a variable rate, but some lenders offer fixed rates for transactions under £500,000.
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Our team experience allows NeoWave to offer management consultancy services to our clients, whilst assisting in finding the right partners for raising financial capital for businesses, property and commercial projects. NeoWave focuses on achieving tangible, practical results in the shortest period of time.
