Commercial Mortgages | No Broker Fees

Home » Commercial Mortgages

COMMERCIAL MORTGAGE MENU

PHONE
MESSAGE

Call 01922 620008
talk through your needs

Enquire Today
quick enquiry form

Receive a Callback
from a qualified advisor

At ABC Finance Ltd, we work with lenders across the market to secure the best possible terms for our clients. Read through our in-depth hub to find out everything you need to know when searching for finance.

What’s in this guide?

  • Commercial mortgages explained
  • Types of commercial mortgages
  • How much can I borrow?
  • Costs of a commercial mortgage
  • Where to get a commercial mortgage
  • How to get your application approved
  • FAQs
  • How do ABC Finance Ltd work?

    We’re a fee free broker, and work on your behalf to secure you the best commercial mortgage deal. Working with a wide range of lenders, from banks to specialist lenders, meaning we have options for most clients.

    Enquire online or call us now to speak with a commercial mortgage expert. We’ll ask some basic questions and then source the market for you. We’ll then aim to send your lending proposal to you within two hours. This will detail the interest rate, fees and monthly payment.

    Latest Products

    Compare commercial mortgage rates from the leading lenders across the whole market.

    Product CM0001 - Apply Now
    Interest Rate
    2.75%
    Rate Type
    Variable
    Lender Fee
    1.50%
    Max LTV
    80%
    Min-Max Loan
    £2,000,000 - £80,000,000
    Property Type
    Mixed Use Or Commercial
    Own Occ/Investment
    Owner Occupied
    Max Term (Years)
    20
    Repayment Or Int Only
    Repayment
    Product CM0002 - Apply Now
    Interest Rate
    2.85%
    Rate Type
    Variable
    Lender Fee
    1.50%
    Max LTV
    65%
    Min-Max Loan
    £1,000,000 - £80,000,000
    Property Type
    Mixed Use Or Commercial
    Own Occ/Investment
    Investment
    Max Term (Years)
    15
    Repayment Or Int Only
    Repayment
    Product CM0003 - Apply Now
    Interest Rate
    3.00%
    Rate Type
    Variable
    Lender Fee
    1.50%
    Max LTV
    80%
    Min-Max Loan
    £500,000 - £2,000,000
    Property Type
    Mixed Use Or Commercial
    Own Occ/Investment
    Owner Occupied
    Max Term (Years)
    20
    Repayment Or Int Only
    Repayment
    CLICK HERE TO COMPARE MORE MARKET LEADING PRODUCTS

    Everything You Need To Know About Commercial Mortgages

    We cover everything from guides, calculators, FAQs and jargon busters, to information on rates and criteria, and everything in between.

    What are the key benefits of commercial mortgages?

    What is a commercial mortgage?

    A commercial mortgage is a loan secured against a property that is deemed to be commercial, or non-residential, and can be used for either purchase or refinance. They can be used to fund a wide variety of property types including full commercial, mixed-use properties and even land.

    Commercial mortgage lenders tend to take an individual view to assessing applications, meaning criteria is often more flexible. This allows lenders to consider a wide variety of ‘out of the ordinary’ scenarios without issue, such as minor issues with an applicant’s credit history.

    Who can get a commercial mortgage?

    Whether you’re a property investor or business owner, funding can be offered to most people.

    We’re able to offer finance to individuals, sole traders, partnerships, LLPs, Ltd companies and overseas applicants.

    What are the key benefits of commercial mortgages?

    There are several key benefits to taking out a commercial property mortgage, including:

    • The interest paid is tax-deductible.
    • This type of lending is much more flexible than it was a few years ago due to the rise of challenger banks.
    • Using this type of mortgage to purchase commercial property could see you benefit from increases in the property value.
    • Investing in commercial property could produce higher yields than investing in residential property.
    • Borrow over a long term, making savings compared to short-term finance, such as bridging loans.

    What are the key features of a commercial property mortgage?

    We work with lenders across the entire market to provide cost savings throughout the process. As a result, we can offer you the following:

    • A choice between fixed or variable rates
    • We can arrange borrowing for almost any property
    • Choose any term from 1-30 years
    • A choice of Interest-only, capital repayment or part and part available
    • We can access the best rates, with no broker fees for loans over £100,000

    Types of commercial mortgages

    Mortgages for commercial property can be split into quite a few distinct types. Here we will break down the main ones.

    Owner occupied or commercial investment

    Owner-occupied commercial mortgages also known as business mortgages are used when a property is being purchased for the buyers own business to trade from. This includes transactions where a company lets to another company with the same or some shared shareholders or directors.

    Commercial investment applications also known as a commercial buy to let mortgage, are used when a commercial property is being let to another business to trade from. Think of this as a buy to let mortgage for non-residential property.

    Interest only or capital repayments

    In most instances, lending is offered on a capital repayment basis, so you gradually repay the mortgage over the term.

    Some lenders will offer interest only, although as this tends to be through challenger banks, this often comes at a slightly higher interest rate.

    Where you’re looking to borrow on an interest only basis, you’ll need to consider how you’ll repay the balance at the end of the term. The most common methods are selling the property, repaying through other investments or taking out a new mortgage.

    Fixed or variable rate

    Fixed rate mortgages have an interest rate that stays the same for a set period, usually between 2-5 years. During a fixed rate period, your monthly repayments remain the same each month, regardless of changes in the Bank of England Base Rate.

    Most commercial mortgages are a variable rate, which means that your interest rate, and therefore your monthly repayments can change as interest rates change. Variable rates tend to vary gradually meaning it’s unlikely you’ll see a huge jump in the rate within a short term.

    How much can I borrow?

    Your maximum loan is governed by two distinct lender criteria points – the loan to value (LTV) of your application, and where you sit in the lender’s affordability rules.

    Loan to value

    The maximum loan to value is 80% for certain sectors, usually healthcare or manufacturing. This means that your loan can not exceed 80% of the value of the property. For certain industries, this may be increased or decreased slightly, depending on the health of the sector.

    Typically 65% – 70% LTV is realistic for most application types.

    Some lenders base their LTV calculations on a ‘going concern’ value – a combination of both the business and property value.

    Affordability

    For owner-occupied applications, lenders will look at the trading history of your business. Although all lenders use different calculations, they usually lend based on the EBITDA of the borrower. This is the companies earnings before interest, tax, depreciation and amortisation.

    Once this figure has been established, lenders either insist that the EBITDA is a certain percentage over the annual mortgage payments, or lend a maximum loan at a set multiple of EBITDA.

    Commercial investment mortgage affordability is usually calculated by setting a percentage over the mortgage payments, much like buy to let mortgages. For example, 145% rental cover, would mean that the rental income must be greater than 1.45 times the proposed mortgage payment.

    Costs of a commercial mortgage

    The main costs associated with these products are the interest charged, set up costs for the mortgage and any acquisition costs (for property purchases).

    Interest rates

    Owner occupied rates usually start at 2.25%, with rates of 2.5-7% common.

    Commercial investment rates are generally slightly higher, with rates usually sitting between 2.8-7.5%.

    In both cases, lower rates are reserved for the lowest risk applications. Lenders usually base this on credit history, income, how reliable the income is in the longer term and the quality of the property.

    Set up fees

    We work hard to save you money on your commercial property mortgage application. It’s not usually possible to avoid all fees, below are some of the common fees you can expect to pay:

    Lender arrangement fee – arrangement fees are often charged as a percentage of the loan. Lender arrangement fees range from 1-2% but are usually between 1.5-2%. Although some lenders will expect some of the fee to be paid on offer, it is usually possible to add the fee to the loan.

    Broker fees – most brokers will charge broker fees for arranging. This is often upwards of 1% of the loan amount. We don’t usually charge a broker fee for loans over £100,000, as we’re committed to saving you money throughout the process.

    Some brokers will also charge an upfront administration fee before working on your application. We never charge upfront fees to work with you on your application.

    Valuation fees – as with a residential mortgage, a valuer will inspect the property and produce a report for the lender. The fee is usually paid part way through the process. This is before the offer and the cost will vary based on the type, value and location of the property.

    Legal fees – most lenders will expect you to cover both your own and their legal fees concerning the loan. The cost of legal work is higher than those associated with residential mortgages. The fees charged will vary depending on the loan size, property value and complexity of the transaction. Legal fees are usually quoted on a case-by-case basis.

    Acquisition costs

    The main acquisition costs are Stamp Duty and VAT. Stamp Duty rates for commercial property are the following:

      • 0% on anything up to £150,000
      • 2% on the next £100,000 (the part from £150,001 to £250,000)
      • 5% on the part over £250,000

    VAT is also due on some commercial property purchases. The estate agent will usually make you aware of this upfront. Where VAT is due, it can often be reclaimed following the purchase and where this is the case, we’re usually able to lend 100% of the VAT due in addition to your commercial mortgage.

    Where to get a commercial mortgage

    Working with a broker or approaching lenders directly

    A good broker will manage your application fully, taking the pressure of you. They will compare options from across the market and will be aware of intangible factors, such as current service levels, or appetite for your sector, which is hard to find without their help.

    That said, some brokers charge high fees for their service, including, in some cases upfront fees, which can significantly add to your costs. We don’t charge broker fees for mortgages over £100,000.

    A good broker will also cross-check your application before submission to the lender to ensure you have the best chance of approval.

    Choosing the type of lender to approach

    Lending on commercial mortgages is offered through three different types of lenders – high street banks, challenger banks and specialist commercial mortgage lenders. High street banks tend to offer the lowest rates, but have strict criteria and often lack flexibility.

    Challenger banks charge slightly higher rates, but offer a more flexible approach to lending, often with higher loan to values and more relaxed criteria.

    Specialist commercial lenders tend to offer the most relaxed lending criteria and often accept adverse credit and projection led applications. This comes at a cost of higher interest rates.

    How to get your application approved

    Prepare your documents upfront

    When looking to apply, it’s best to collect the required information upfront. For most applications, the following documents will be required:

      • A fully completed application form
      • A detailed assets and liability summary
      • 3-6 months statements for your business bank accounts (for owner-occupied applications)
      • 2 years trading accounts (for owner-occupied applications)
      • A copy of leases and tenancy agreements (for commercial buy to let applications)

    Be as responsive to requests as possible

    Staying at the front of the lenders mind is paramount to keeping your application moving forward in a positive way.

    Ensuring that requests are complied with quickly can be a major advantage and give the lender a better impression of you as a borrower. This can prove to be key should your application run into trouble later down the line.

    FAQs

    How can I make savings on my monthly finance costs?

    Some lenders will allow you to take out your loan on an interest-only basis. It is recommended that you consider this carefully or enquire above to speak about this with an expert.

    Can I remortgage to repay loans and other unsecured finance?

    Where appropriate, most lenders will allow you to repay unsecured debts when remortgaging your property. When repaying short-term finance using a mortgage, it is recommended that you consider the situation carefully as it may save you money on a monthly basis, but could end up costing more in the long run.

    How do they compare to bridging loans?

    Bridging loans are a form of short-term finance, whereas mortgages are long term. Although they may take a little longer to complete, you will experience big cost savings by taking out a commercial property mortgage rather than short-term finance.

    For more information, try out our mortgage repayment calculator or read our guides.

    Working with ABC Finance Ltd.

    By choosing to work with us, your application will be in safe hands, whether you’re an owner-occupier or looking to let out property. We make sure all the enquiries we receive are managed carefully. Every client must understand the process, feels comfortable and receives the answers they need quickly. We produce tools such as our commercial mortgage repayment calculator to make your life easier. We’ve been established since the year 2000 and are fully FCA regulated, which means you can rely on us when seeking impartial advice. Unlike most brokers, we offer direct access to leading banks and specialist lenders in the market, meaning you can avoid expensive packager fees. Removing that additional layer from the process allows us to pass on the savings directly to you.

    TALK TO AN EXPERT NOW

    Commercial mortgage example

    A client is looking to purchase a high-quality office building and intended to relocate his profitable business to trade from the new building. This will allow the client to expand the business and increase profits further.

    The building will cost £1,000,000 and he is looking to borrow 70% LTV (£700,000). The client is happy to take the mortgage on a capital repayment or interest-only basis over 20 years and wants the lowest possible rate and is not concerned if this it is variable.

    Purchase Price £1,000,000.00
    Loan Requested £700,000.00
    Net LTV 70%

    Depending on the strength of both the applicant and the business, we would be able to offer this over a term of 20 years on a capital repayment basis without a problem. The lowest rate available for the purposes of this example is 3% per annum, with a 1.5% lender arrangement fee.

    The client has asked to add this fee to the loan to reduce his out of pocket expenses while moving the business. This leaves the loan looking like this:

    Loan Amount £700,000.00
    Arrangement Fee – 1.5% £10,500.00
    Loan with Fee Added £710,500.00

    The monthly repayments when calculated on a capital repayment basis would be:

    Total Loan £710,500.00
    Monthly Repayment £3,940.42

    The client would also be obliged to pay legal costs and a valuation fee during the application process to progress the application to completion.

    Monthly repayments vs. total cost of credit

    The chosen term will affect the total cost of borrowing money. If the term is reduced, the monthly repayments will increase, but his total cost would reduce.

    This would have to be offset against the affordability of the loan, as if the repayments are too high, they may place a strain on the finances of both the client and the business.

    Assuming the interest rate remained the same during the life of the loan and all repayments were made on time, by changing the term, the total interest paid can change dramatically.

    Term Chosen 5 years 10 years 15 years 20 years 25 years
    Monthly Repayment £12,766.75 £6,860.64 £4,906.58 £3,940.42 £3,369.27
    Total Interest (Life of the Loan) £55,505.00 £112,776.80 £172,684.40 £235,200.80 £300,281.00

    As you can see from the above example, by reducing the term to 15 years from 20 years, the monthly payments increase by £966.16. The flip side to this is that the total interest charged reduced by £64,516.40 over the course of the loan.

    The terms of borrowing must be considered carefully to ensure the right balance is reached for your individual circumstances.

    about-the-author-gary-hemming

    About The Author

    This content was produced by our Commercial Lending Director, Gary Hemming. Gary has over 15 years’ experience in financial services and specialises in bridging loans, commercial mortgages, development finance and business loans. He is widely respected in his field and regularly provides expert commentary for specialist trade publications, specialist business press as well as local and national press.

    Gary Hemming CeMAP CeFA CeRGI CSP  -  
    Commercial Lending Director