Commercial mortgage: common terms & definitions
Affordability calculations are the methods used by commercial mortgage lenders to assess whether your proposed repayments are deemed affordable.
The lender’s arrangement fee is a charge made for setting up the loan. It is charged by the lender and is often added to the loan.
Bank of England Base Rate
The Bank of England Base Rate is the main interest rate that is tracked on variable rate commercial mortgages.
Capital repayment commercial mortgage
With capital repayment commercial mortgages, you pay back a small part of the loan and the interest with each monthly repayment. If all payments are made on time and in full, you are guaranteed to pay off the whole loan at the end of the term.
A conveyancer is someone that is trained and qualified in the law dealing with property. A licensed conveyancer can act for buyers, sellers and lenders.
Crowdfunding, also known as peer to peer funding, is a method used to raise capital for lending. It involves a large number of people, who all lend a small amount. This money is then pooled together to fund the transaction as one large loan.
Decision in principle
Decision in principle is a document from a lender to say that in principle they would be happy to lend to a prospective borrower or borrowers based on some basic information. Full acceptance of the application will always be subject to full underwriting checks.
The deposit is the difference between the purchase price of the property and the loan amount. The deposit is paid by the borrower as their contribution to the transaction.
Early repayment charge
An early repayment charge, also known as a penalty is a pre-determined fee which is charged when a mortgage is repaid in part or in its entirety prior to a certain date.
Fixed rate commercial mortgage
Fixed rate commercial mortgages have a fixed interest rate, meaning the monthly payments will remain the same, regardless of changes to the Bank of England Base Rate.
Interest only commercial mortgage
Interest only commercial mortgages require only the interest to be paid each month. The capital is then repaid in a lump sum at the end of the mortgage term.
LIBOR (London Interbank Office Rate) is a rate which is controlled by the British Bankers Association and can be used as the rate that is tracked by variable rate commercial mortgages.
Owner occupied commercial mortgage
A commercial mortgage is classed as owner-occupied when the applicant intends to operate from the premises that they are looking to finance.
The rental yield is a tool used to compare the financial return from properties. The rental yield describes the annual rental income received as a percentage of the value of the property.
Second charge commercial mortgages are second loans secured against your commercial property and sit behind your first charge lender in terms of debt priority in the event of repossession.
Stamp duty is a levy charged on the purchase of many commercial properties in the UK. Non-residential properties have different stamp duty rules than those for residential property.
The term of the loan is the length of time the loan has been agreed for. The loan must be repaid in full at the end of the term.
A variable interest rate is an interest rate on a loan or security that fluctuates over time. The term variable rate refers to any type of commercial mortgage that does not have a fixed interest rate.
The vendor is the person or organisation that currently owns the property and is selling it.