Commercial Mortgage Brokers
What are commercial mortgage brokers?
Commercial mortgage brokers are qualified financial advisors that specialise in commercial mortgages. Their mission is to find a mortgage with terms and rates to suit your budget and requirements.
What is a commercial mortgage?
Typically, a commercial mortgage is a loan procured on a business property. They can be acquired by both individuals and their companies, and to buy the property in addition to developing it. Just like typical mortgages, commercial mortgages can be arranged through various preferences, including fixed and variable rates.
How can a commercial mortgage broker help you?
There are many different factors to consider when getting a commercial mortgage which can easily be missed without the experience of a mortgage advisor.
The advantages of choosing to get advice from CAPC mortgage brokers are as follows:
- Our Commercial mortgage brokers are trained, qualified professionals with extensive knowledge of their field. They save you time by comparing the market for you and they can help you with the legal side of purchasing or re-mortgaging a commercial property.
- Our brokers are best placed to help you in your mortgage buying decision, we provide you with options based on your specific situation to make sure you don’t end up with an unsuitable mortgage.
- It is extremely likely using a commercial mortgage broker will save you money. Our mortgage brokers have access to thousands of lenders rates at our fingertips allowing us to find you the best deals. Generally, the money we save you, outweighs the costs involved.
- Our brokers also have access to private banks, allowing us to provide truly Bespoke Arrangements, usually used for large mortgages and tricky situations.
In a nutshell, the commercial mortgage market is getting more complex year on year, commercial mortgage brokers will give you all the information you need to make a confident informed decision that you are getting a great deal that is suitable to your budget and lifestyle, saving you money time and stress in the years to come.
When are commercial mortgages used?
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 taking security on commercial property it is considered uneconomic to borrow under £50,000 this way, and some lenders have a minimum of £75,000 or more.
What can be offered as security?
Generally lenders take the property you are buying as the only security for the loan, which is typically 70% of the value of the property, and ask for a cash deposit for the balance of the purchase price. If you don’t have the cash you can offer the lender additional security, which is typically other property which you have considerable equity in, but could be a charge over other assets such as an insurance policy or shares.
How long are commercial mortgages for?
Commercial mortgages are typically from 3 to 25 years. Shorter term finance is also available and this may be called a bridging loan or property development loan, which you may have from a few weeks up to 24 months.
Are all commercial mortgages variable rate?
No, but most are. Typically a rate will be quoted as X% over base or LIBOR, and this in residential terms would be called a tracker mortgage. Fixed rate mortgages are available and for amounts under £500,000, where the lender takes the rate risk themselves, they may be advantageous. But mortgages where the lender passes the risk on to the borrower by using a “Swap” contract are best avoided. These complex derivatives are not suited to SME borrowers.
Why can’t I find a definite rate?
The rates charged for commercial mortgages and business loans are not pre-determined like personal loans usually are. In each and every case when an application is made for a commercial mortgage a lending manager looks at it carefully to assess the risk level in making the proposed loan. A great deal of information is required for this decision. The lending manager will vary the rate offered to take account of the riskiness of the loan. Larger loans with a low risk will get the best rates. Lenders usually have a risk profile that they work to, so if your loan falls outside their risk profile it will be refused.
How much can I borrow?
For owner occupied property you can find a 70-75% mortgage. If it is an investment then the amount you can borrow will be determined by the rental income generated by the investment but will not exceed 65% of the purchase price. If you are buying a business which includes goodwill, stock etc then the amount available will be further reduced.
Whilst arrangement fees are usually added to the loan when it completes, some lenders want some money to cover their work if you don’t accept their offer. In this case they may charge a commitment fee, which is part of the overall arrangement fee, but is payable with your formal application, and is non-refundable. Arrangement fees are typically 1% -2% of the loan amount for loans up to £1 million, with the smaller loans getting the higher rates.
Commercial properties are far more variable than residential ones, so a valuer will be required to visit the property and write a 20-30 page report about it to the lender. Typically, residential properties are not visited by a valuer today, which is why they are much cheaper than commercial valuations, which start at around £500 for a simple case, but again because of variety are not done on a fixed price but from a bespoke quotation. This is payable to the lender after an initial indicative offer has been accepted.
You will be required to pay both your own legal fees and those of the lender. Again because of the variety of property legal fees will vary with complexity but start at around £500 for each party. 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.
Using a broker
It makes sense to use a specialist commercial broker who has the contacts and market knowledge to get you the best deal. The broker has to present your case to the lenders, so you must be truthful and fully co-operative in your dealings with your broker. Do not try to use several brokers simultaneously, you will be embarrassed and may end up empty handed. Brokers who are members of the NACFB can be relied upon to have Professional Indemnity insurance and to abide by a code of practice.
Many brokers charge for finding commercial mortgages, expect to pay a fee of up to 1% of the loan value, but don’t agree to pay anything until the broker has produced a loan offer at terms that you have pre-agreed with them.
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A fee of up to 1.5% of the mortgage amount may be charged depending on individual circumstances. A typical fee is 0.67%.