Commercial Mortgage Comparison

Comparing types of commercial mortgage

If you’re looking to buy a non-residential property, it’s likely you’ll need a commercial mortgage to complete the purchase.

This type of borrowing can also be used to raise funds against a property that is already owned or to purchase an unusual property that wouldn’t fit on a residential mortgage. Not all lenders operate in the same way and costs can vary a great deal between one lender and another.

Owner-occupied business mortgages or property investment

Commercial mortgages are used to purchase or refinance commercial and mixed-use properties. Owner-occupied commercial mortgages are designed to fund a property which is used or to be used for your own business to trade from.

Commercial investment properties share a number of similarities with a standard residential buy to let. When a property is purchased and leased to another person, or business, it is classed as a commercial investment property.

If the property is deemed to be non-residential, buy to let mortgages aren’t suitable therefore a commercial investment mortgage is needed. A semi-commercial property would also fall under this banner. Some lenders however, offer reduced interest if the property has an element of residential, i.e. a flat above.

Commercial investment mortgages are usually entirely different products than the ones designed for owner-occupiers. In some situations, clients buy a property and rent it to their own business. Lenders would consider this to fall under the owner occupier banner, even if your business signs a lease and pays rent.

Fixed rate or variable

Much like residential mortgages, many lenders offer fixed interest for a period of time, this is agreed at the outset. This means that the rate, and subsequently your monthly payments will remain the same during the fixed period. Fixed rates usually start from 2 years with 15 years typically being the maximum.

There is usually a fee to repay the loan within the fixed period. When the fixed term ends you are usually free to shop around for a new product without a charge being incurred.

Unlike a fixed, variable rates – as their name implies – can go up or down depending on market conditions. This means that your monthly payments can also fluctuate therefore you should always consider that the mortgage will still be affordable if there is an increase.

Interest only or capital repayment

Capital repayment monthly payments are made up of both the interest charged and repayment of a portion of the capital itself. By making all repayments in full and on time, capital repayment loans are fully repaid at the end of the term.

If you would like the certainty that your mortgage will be paid off, capital repayment is the obvious choice. As you are also repaying the capital on the loan, the monthly payments are higher than with an interest only loan.

Interest only loans, on the other hand, involve payment of only the interest each month. This means that the capital remains outstanding at the end of the term.

The monthly payment is lower with interest only, which suits some people better. When the mortgage term ends you may wish to sell the property and hope that it has increased in value. This is a popular choice with property investors.

Which product is the best for me?

The best lender and product will depend on your personal circumstances. Not all lenders will offer the same products and each have different benefits. It’s important to compare the entire market when searching for the best deal.

If you’re unsure which product is the most suitable for you, contact one of our experienced advisors, who will be happy to talk through your options.

Comparing commercial mortgage products

When comparing products, it’s important that you take all fees and charges into account. Choosing a product based on the interest percentage alone will often result in you not selecting the cheapest option.

Understanding how easy the chosen lender is to deal with, along with any added costs is an important part of the process. Considering the whole picture will ensure that you’re happy with your commercial mortgage for years to come.

What happens when I apply?

We like to keep the process as simple as possible for you.

We review the product selected against your circumstances and will call you to ensure that you’ve chosen the best product for your situation.

If this is all in order, we will let you know what documents are needed from you to take your application forward, usually by email.

If there is an opportunity to save you even more money, we will offer you an alternative product.

Comparing different types of commercial mortgage lender

Lenders come in different varieties and each has their own benefits and drawbacks.

The most well-known tend to be high-street banks, which tend to offer lower interest rates than non-high street lenders. Although lower interest is very attractive, they do also tend to come with the most stringent criteria and as such, not everyone will be eligible.

Mortgages from high-street banks are typically reserved for the best quality applications, which means strong credit history and affordability.

Investment mortgages will be expected to have long leases in place with high quality tenants. Loan to value ratios are usually lower with the high street.

Challenger banks are growing in popularity and are a strong alternative to high-street banks. They do often charge higher interest than the high street, but do offer certain benefits, such as higher loan to values and the ability to pay interest only.

Challenger banks may be willing to accept shorter leases, take a more relaxed view to affordability and may accept historic credit problems.

Finally, specialist lenders tend to take a very relaxed view to lending in comparison to the other two, however the price you pay for this is higher interest. These lenders will rarely be the first choice but can be a valuable source of funds when needed.

Comparing commercial mortgages to residential mortgages

Commercial mortgage rates are usually higher than residential and the maximum loan to value lower. We often discuss this with borrowers who are unfamiliar with commercial borrowing and feel that the interest charged is too high.

The reason for this difference is due to the higher risk associated with borrowing.

As commercial property is more specialist, demand is lower than with residential property. This means that if the lender was forced to repossess, they may have to sell for a vastly reduced price for a quick sale. If the loan to value was high they could end up with a loss, hence the lower LTV’s.

Another key difference between the two is the fact that commercial lending tends to be handled manually, rather than by a computer. A benefit of this is that it does allow for common-sense lending to take place.

Compare products above and apply online for your preferred option

We manage your application right through to completion for you, helping you every step of the way.

We’re not just interested in introducing you to a lender. We want to work with you throughout the whole process to ensure the application is complete quickly and easily.

Why compare commercial mortgages with ABC Finance Ltd?

The overall costs vary significantly between different lenders. With a number of rate and fee options and repayment methods, there are big savings to be made.

Whether you want to check you’re on the best deal or purchase a new property, we can save you money and take all the hassle out of the process.

Securing your new commercial mortgage

To secure your new business mortgage, use our commercial mortgage rates comparison above and apply online instantly.

Alternatively, to discuss your requirements with an expert, enquire now for a call back, or get in touch now on 01922 620008.