A commercial mortgage is what you’ll need if you’re looking to buy premises for your business.
It could be, for instance, that you’ve been working from home and now want to take on staff and move into more official-looking premises. Then again, maybe you’re a business which needs more space because you’ve grown in recent years or you’ve decided you’re fed-up paying rent and would rather buy more suitable premises. Regardless of the reason, a commercial mortgage rather than a residential mortgage is what you’re looking for.
As you would expect – simply because of the size of business premises, a commercial mortgage tends to be more expensive than a residential mortgage. Various lenders specialise in commercial mortgages but, because this is such a specialised area, it’s always a good idea to speak to a commercial mortgage broker first. They’ll understand the ‘lie of the land’ and be familiar with who offers the type of product that would be best for your needs.
What does a commercial mortgage involve?
The term of a commercial mortgage is usually around 15 years, meaning it’s far less than a typical residential mortgage. However, similar terms apply in terms of the bigger deposit you put down, the better repayment rate you’ll get. Typically, you will be expected to pay around 30 per cent of the purchase price of the property as a down payment. Although owners of riskier companies such as those in the catering and hospitality sector - where there is traditionally a high business turnover - may have to put down a bigger deposit.
Other fees to consider
You’ll be asked for an arrangement fee for the mortgage. There is also insurance to think about and a survey of the premises to pay for. Then there is the cost of getting a solicitor to sort out the legal paperwork.
A big benefit of having a commercial mortgage over a residential mortgage is that you will be able to claim back the mortgage interest as an expense. That’s also the case for a buy to let commercial mortgage (but not for a buy to let residential mortgage). Another plus for commercial over residential is that the 3 per cent stamp duty tax on second properties doesn’t apply either.
Info you’ll need for a commercial mortgage
A commercial mortgage lender will need to see how your business is performing in order to be confident you’ll be able to make your monthly payments. So, you’ll need to bring with you tax returns for the past three years (especially if you are self-employed) and current and projected performance figures. You’ll also need bank statements. Finally, the lender will need the names of any other company director or co-owner.
Commercial buy to let mortgages
Just as a property investor can rent out residential property via a buy to let mortgage, the same is true for commercial premises.
Part-commercial mortgages
There are plenty of properties that are split between commercial and residential. It could be a flat above a shop, for instance, or an office with adjoining residential accommodation. Now that the government has made it easier to change from commercial to residential property, this type of mortgage may become more commonplace in the near future.
Commercial landlords benefit from being able to claim tax relief on the commercial part of the property.
Get in touch today
If you’re considering investing in a buy to let property with your pension or other savings then do get in touch with one of our experienced mortgage brokers for advice. We specialize in landlord mortgages and will be happy to discuss your needs. Feel free to call our Norwich-based team during working hours on 01603 574404 or write to us via email: hello@tealfinance.co.uk. We will respond ASAP