The rates you pay on your commercial mortgage are perhaps the most common criteria to consider – but they don’t paint the whole picture!
Businesses looking for affordable lending can often get suckered into a less than competitive deal, enticed by great interest rates, but disguising:
- Substantial exit penalties or long tie-in periods.
- Hefty arrangement fees or management charges.
- Inflexible terms with little option to remortgage.
Therefore, the terms are just as vital. With thousands of commercial mortgages out there, it’s imperative you work with an experienced, independent broker to ensure you’re choosing a genuinely beneficial business loan.
Revolution Brokers are experts in business borrowing, with teams of skilled consultants delivering wholly impartial advice to break down the jargon and make it simple to reach informed decisions.
Give us a call on 0330 304 3040 to learn more about the best rates (and terms!) currently on the market. Alternatively, read on for some pointers about what to expect from your commercial mortgage application.
Large Business Mortgages Explained
Unsure whether your business borrowing needs count as ‘large’? Let’s clarify!
Every UK commercial lender has a varying policy, but most will consider anything of £500,000 or above a large business loan – and there isn’t really any limit.
Revolution often organises business lending in the millions, with various lenders to choose from depending on the nature of the purchase and your business sector.
Commercial mortgages can be used for pretty much any business property acquisition, so that could be:
- Buying a commercial property
- Investing in a mixed-use premise
- Purchasing somewhere to work from or as an investment
- Refurbishing existing or new premises
There are many other potential applications, but commercial mortgages are reasonably flexible with far less regulation than the UK residential home loan market.
Now, when a lender considers your application, they won’t necessarily be as focused on the total required as on the risk factor.
That means assessing things like your credit rating, business risk, affordability, and the Loan to Value ratio – i.e. how much you want to borrow as a proportion of the property value.
Therefore, while interest rates are essential, you can often secure a better rate by working with an independent broker to ensure your application is well structured and represents a lower risk – attracting more competitive deals!
Average UK Commercial Mortgage Rates
Business mortgages are inevitably a little higher risk than a regular residential loan.
There’s a higher probability that the business will cease trading or fall behind projected performance targets and be unable to keep up with the repayments.
It’s normal for commercial mortgage rates to be higher than on residential loans and isn’t an indication that the lender isn’t keen to accept your application.
However, the rates themselves can vary substantially.
They also change rapidly, based on factors such as inflation, economic forecasts, and sector performance – but as a rough guide:
- A commercial mortgage for an owner-occupier with a 30% deposit usually comes with rates starting at 2.8% above base rate, plus up to 2% as an arrangement fee.
- Attractive business sectors, such as legal or financial professionals or a medical company, can secure rates from around 2.4% above the base rate.
A few other snippets of information to help you gauge the commercial mortgage interest rates you might be quoted:
- Most high street lenders do not offer low-interest mortgage rates on shorter-term commercial borrowing.
- Lower interest rates are available on facilities of at least five years, with a term of 15-20 years, since the lender faces less risk and can stipulate exit penalties to ensure their borrower remains with them for at least five years.
- When a fixed rate expires, most lenders will charge an arrangement fee to facilitate a new loan agreement, often charging another 1.5% on the remaining capital to be borrowed.
Choosing Between Repayment and Interest-Only Commercial Mortgages
Most lenders offering extensive commercial mortgages (over £1 million) will only offer a repayment loan.
There are interest only commercial mortgage products out there. Still, availability depends on whether the acquisition is an investment or an owner-occupier situation and the type of property in question.
Repayment mortgages are less risky and mean that the lender’s outstanding capital reduces over time, making it a more attractive proposition from a risk perspective.
Another option is where a lender will offer a blended commercial mortgage. A mixed-use property, such as a flat above a shop, can be financed through a mortgage with an element interest-only and a longer repayment term for the residential proportion.
Revolution also brokers large commercial mortgages with an interim interest-only period, often of up to 12 months.
This option is an excellent alternative if you need to refurbish a new commercial property, with lower monthly payment costs for the first year to give a little breathing space.
The Impact of LTV on Commercial Mortgage Rates
Finally, let’s think about Loan to Value, which substantially impacts the interest rates you can expect to pay on a commercial mortgage.
UK lenders prefer to see deposits of at least 40%, making the commercial mortgage at 60% LTV.
With this deposit size, you may be offered commercial terms from 4.6% over the base rate for a variable mortgage product or 4.8% for a fixed-term loan over five years.
High LTV commercial mortgages aren’t always easy to come by, but if you work with a skilled broker and secure an offer at 75% LTV, you might expect to see current rates starting at 5.05% over base rate and perhaps 0.05% lower for a fixed rate.
The best way to find the most attractive commercial mortgage rates is to work with an independent broker, with whole-of-market access to every applicable lending product.
Revolution Brokers has years of experience organising commercial mortgages, from small borrowing products to expansive loans as part of notable development projects.
For impartial assistance to help you find the best mortgage rates for your business, please give us a call on 0330 304 3040, or get in touch via email at [email protected]