Commercial Mortgages

Commercial Mortgages: A Complete Guide by The Mortgage Store Cheltenham & Gloucestershire

Whether you’re looking to purchase a new business property, invest in rental spaces, or release equity from an existing property, a commercial mortgage could be the ideal solution. At The Mortgage Store Cheltenham & Gloucestershire, we know that commercial mortgages can feel more complex than residential ones, but we’re here to simplify the process for you.

Here’s everything you need to know about commercial mortgages, including their types, benefits, and application process.

What Is a Commercial Mortgage?

A commercial mortgage is a loan secured against a property that isn’t your primary residence. These properties could include:

• Business premises, such as offices or retail spaces.
• Residential properties intended for rental income.

Commercial mortgages typically have terms ranging from 3 to 25 years, with loan-to-value (LTV) ratios of 60–75%. For investment properties, your borrowing power is often linked to the expected rental income. If the property is for business use, the loan amount may be lower due to differing risk assessments.

Why Might You Need a Commercial Mortgage?

Here are the main reasons businesses or investors turn to commercial mortgages:

1. Property Purchase: Buying a property for your business operations or to generate rental income.
2. Equity Release: Unlocking funds from an existing property to reinvest in your business or other properties.
3. Development: Financing new property developments, though lenders often require experience in this area.

Types of Commercial Mortgages

Commercial mortgages are generally divided into two main categories:

1. Owner-Occupier Mortgages

These are for businesses purchasing property to use as their trading premises, such as offices, warehouses, or retail shops.

2. Commercial Investment Mortgages

Designed for properties intended to generate rental income, either from residential tenants or other businesses.

In addition, there are development mortgages for those building or refurbishing properties.

Fixed vs. Variable Rates

When choosing a commercial mortgage, you’ll typically encounter two rate types:

• Fixed Rates: These provide certainty with set payments for a period (1–10 years). While fixed rates are predictable, they may initially be higher than variable rates.
• Variable Rates: These fluctuate with the Bank of England base rate, offering potential savings if rates drop but less predictability.

Key Differences Between Commercial and Residential Mortgages

1. Customised Rates: Commercial mortgage rates aren’t standardised; they’re tailored based on the strength of your application and property type.
2. Additional Fees: These include lender arrangement fees, valuation fees, legal fees, and broker fees. Commercial transactions often involve more complex legal work, resulting in higher costs.

Applying for a Commercial Mortgage

To determine eligibility, you’ll typically need to provide:

• Three years of certified accounts (audited where possible).
• Two months’ bank statements.
• An assets and liabilities statement.

Lenders will evaluate your proposal based on your financial history, the property type, and its intended use. Preparation is key—gather all necessary documentation and consider working with a mortgage broker to strengthen your application.

What Else Should You Know?

• Security Requirements: Business loans above £25,000 usually require security, such as the property itself.  Until £25,000 a business loan is unsecured but beyond that point, lenders require a degree of security in order to offset the risks involved.
• Repayment Terms: Fixed-rate terms typically last 1–10 years before reverting to variable rates or requiring renegotiation.
• Fees: Breakage, prepayment, legal, and broker fees may apply, especially for fixed-rate loans if repaid early.

Why Choose The Mortgage Store Cheltenham & Gloucestershire?

Navigating the complexities of commercial mortgages can be daunting, but with our expertise, you’ll find the process much smoother. At The Mortgage Store Cheltenham & Gloucestershire, we’ll work closely with you to understand your goals and match you with the best rates and terms available.

Get in touch today to learn more about how we can help you secure the right commercial mortgage for your needs. Let us take the stress out of the process so you can focus on achieving your business ambitions.