What is a commercial mortgage broker, and why should you use one?
If you need a commercial mortgage for your business, a broker specialising in this type of mortgage may be able to help. We explore what you need to know.
Many businesses rely on commercial property to sell their products directly to customers.
If you’re keen to buy a commercial property, rather than rent, a commercial mortgage broker can help you secure the right deal.
We explore what you should know about this type of broker, what a commercial mortgage is, how it works, the pros and cons, and more.
A commercial mortgage is used to buy or refinance a property or land for business use.
A specialist mortgage broker is useful, as some lenders don’t accept direct applications.
There are many pros and cons to consider before applying for a commercial mortgage.
We’ll find a professional perfectly matched to your needs. Getting started is easy, fast and free.
What is a commercial mortgage, and who can apply for one?
You can use a commercial mortgage to buy (or refinance) a property or land exclusively for commercial use.
This includes commercial buy-to-let property and mixed-use properties, such as one with a shop and a flat or a development with office space and residential homes.
The owner doesn’t live at the property; they use it to make money and hope to generate a profit.
Those who can apply for a commercial mortgage include:
Partnerships
Limited liability partnerships
Offshore companies
However, whether you can apply for a commercial mortgage can vary by lender, which is where a commercial mortgage broker can come in handy.
What is a commercial mortgage broker?
A commercial mortgage broker can help an individual or company considering buying a property for business purposes find the most suitable deal.
A mortgage broker has access to a wide range of deals and can help boost your chances of a successful application.
Why use a commercial mortgage broker?
A specialist commercial mortgage broker can also save you time and money, as well as offer vital support if you have circumstances that may impact your application, such as a bad credit history.
Other factors that may affect your application include being new to commercial property, investing via a complex company structure, or handling complex property.
A qualified mortgage broker can advise you on what to look for with your commercial mortgage and understand the best terms, as well as find the most competitive rates.
It’s worth flagging that some commercial lenders (but not all) may accept applications only through a broker, so you may miss out on competitive deals if you don't use one.
How much can I borrow, and what size deposit do I need?
Similar to a residential mortgage, the amount you can borrow depends on your unique circumstances and the lender.
You can usually borrow at least £20,000, with some lenders offering up to £10 million or even £25 million.
You’ll typically need a deposit of between 20% to 40% of the total value of the property.
Loan terms and interest rates
With the repayment terms, you’ll usually get up to 25 years, which is shorter than the terms of a residential mortgage (up to 40 years).
Interest rates on a commercial mortgage are from 4.5%, higher than those on a traditional mortgage.
It’s important that you determine whether you can afford a commercial mortgage before applying, given the higher costs and deposit requirements.
How much does a commercial mortgage cost?
You may have to pay fees for a commercial mortgage, such as an arrangement, valuation, and legal fees.
Some lenders may exclude some costs. For example, NatWest doesn’t charge set-up fees, early repayment fees, or early closure fees.
So, it’s worth checking what fees apply beforehand or asking a mortgage broker.
We’ll find a professional perfectly matched to your needs. Getting started is easy, fast and free.
Understanding broker fees and procuration fees
It’s worth stressing that lenders pay a ‘procuration fee’ to a mortgage broker for ensuring they are the right lender for that borrower.
Some experts recommend using a broker that charges a fee to offset the potential impact of a bigger procuration fee (but with higher rates than elsewhere).
This will help the mortgage broker choose the mortgage that’s right for your circumstances.
What you might pay a broker
Fees for a commercial mortgage broker are typically a percentage of the loan amount or a set fee.
It’s worth asking what the fees are beforehand and when they need to be paid.
What is the process for applying for a commercial mortgage?
You should consider using a mortgage broker for a commercial mortgage, as some lenders may not accept direct applications, and finding the most suitable deal will take more time.
Initial consultation and lender search
A commercial mortgage broker will first have a consultation with you to find out more about your circumstances, including your financial situation and business goals.
They can then search the market for the most suitable deal and lender for you.
Documentation you may need to provide
You’ll then need to provide documentation, which may include:
Three years of audited or certified accounts and management figures
An assets and liabilities statement
At least two months of bank statements
Identification documents
If you have these documents ready in advance, it could help speed up the processing of your application.
You should talk to a broker if you cannot provide the necessary documentation.
Support during the application
Your mortgage broker should be able to help with your application and submit some of the documentation and forms.
They can also offer updates on your application and let you know if there are any issues.
What are the pros and cons of a commercial mortgage?
There are many advantages and disadvantages worth considering.
The pros of a commercial mortgage
Stability and flexibility: If you own a property, you can choose how to use and monetise it. As you have mortgage payments instead of rental payments, you don’t have to worry about unexpected rent increases. You can also pay off your mortgage early if you want but check if there’s an early repayment fee. If you want to expand your business, you may consider selling or renting the property.
Property value: If your property rises in value, your capital may increase.
The interest rates can be lower than the alternatives: Some alternatives to a commercial mortgage, such as a business loan, have higher rates, costing you more in interest.
You can borrow a significant amount: If you’re unable to buy a commercial property, this type of mortgage allows you to borrow up to 70% of the property’s value.
Tax benefits: Interest payments on your commercial mortgage are tax-deductible.
The cons of a commercial mortgage
You’ll likely get a variable rate deal: Most commercial mortgages are variable rate, so your interest rate can rise and fall. Some lenders offer a fixed rate mortgage, providing certainty about monthly payments.
The property is the collateral: The commercial property being bought is usually security, so it can be repossessed if repayments are missed.
You’ll need at least a 25% deposit: A 25% deposit (or, in some cases, 30%) is substantial and hard to save for. You’ll also need to pay various fees, which can add up.
It’ll take years to repay: You may need to pay your commercial mortgage for up to 25 years, which is longer than other alternatives.
Getting a commercial mortgage can take a long time: It can take months to get one approved, compared to shorter-term loans. You’ll need to meet stringent criteria and also have your company's finances reviewed.
What are the alternatives to a commercial mortgage?
There are many alternatives, including:
Invoice finance: This is a type of business lending that’s based on outstanding invoices, so business owners can access money owed by their customers without having to wait for them to pay.
Unsecured business loan: An unsecured business loan allows you to borrow money without having collateral, such as property. You can get a lump sum in exchange for paying a fixed amount over a set term.
Asset finance: This is a type of business loan used to buy or lease business-related equipment.
Get expert commercial mortgage advice
It can be overwhelming applying for a mortgage, and a commercial one can be even more stressful due to the larger sum you can borrow.
That’s why it’s useful to consider a qualified mortgage broker who specialises in this area and can find the most suitable deal for you.
Unbiased can help you quickly find a mortgage broker.
We’ll find a professional perfectly matched to your needs. Getting started is easy, fast and free.
:quality(20))