Wondering how much a UK commercial mortgage will cost you and your business in 2019? Or maybe you’re wondering how much you and your business can borrow?
You can get started using the simple calculator below:
Disclaimer: The calculator above is for illustrative purposes only and does not accurately reflect all borrowing and repayment costs. This tool is not a measure of your eligibility for a mortgage.
Commercial Mortgage Calculator Fields Explained
Purchase Price: This is simply how much the property you want to purchase costs. Generally speaking, most banks and lenders won’t lend less than £25,000 with some having minimums as high as £100,000. If you need an amount less than this amount, your best bet is looking at an unsecured business loan.
Deposit Amount: This is how much money you’re going to put down. Unlike homes, most lenders typically require at least 20-25% down (Loan to Value [LTV] of 80% or less), so keep that in mind when looking to buy a property for your business. On the plus side, the more you put down, the lower your interest rate is likely to be.
Interest Rate: Like home mortgages you can either get a fixed or variable rate. However, the interest rates can vary widely depending on your trading history, credit score and the type of property you wish to purchase.
Generally speaking you won’t find rates less than about 2.5% with most loans coming in somewhere between 3% and 7.5%. Most variable rates will be linked either to LIBOR or the Bank of England Bank Rate.
Repayment Period: This is the period of time over which you plan to repay your mortgage. Unlike homes, several banks will lend for up to 30 years, including up to 10 years at a fixed interest rate.
Other Fees To Consider
The calculator above is designed to give you a quick overview of how much a commercial mortgage might cost. However, it excludes some fees you may end up having to pay. These can include:
Arrangement Fee: This is usually a fee of 1-2.5% of the loan value (often lower on loans over £1 million). It is usually paid on completion and can be rolled into the loan.
Commitment Fee: Some lenders may charge you an upfront fee of around 0.25% of the loan value just to apply, because of the work involved. If you are charged such a fee, it will usually be used to offset any arrangement fees if you go ahead, but will be non-refundable if you don’t.
Broker Fees: If you use a commercial mortgage broker, they may add a fee on top of the fees listed above. Typically, this would be around 1%, but again this can vary significantly. Some brokers don’t charge a fee, because they will be paid by the lender directly. If you are charged a fee, just make sure it’s upon successful completion.
Legal Fees: Just like buying a home, you’ll likely need to use a solicitor who deals with commercial property before you can get your mortgage. You will also most likely be asked to pay your own fees and those of the lender. Given that commercial mortgages can be more complex than home loans, you can expect to pay several thousand pounds.
Valuation Fees: Given the variable nature of commercial property lenders will require you to pay for a valuation survey. While simple purchases may involve fees as low as £500, expect to pay in the thousands of pounds for most properties.
Early Repayment Fees: Finally, if you get a fixed rate mortgage and then choose to pay it off early, you’ll most likely have to pay an early repayment fee.
How Much Can My Business Borrow?
This is the big question most borrows have, and yet is very difficult to give a straight answer to. Unlike, homes where you can use a simple formula such as 4X income with an LTV below 90%, the same is not true for commercial property.
As mentioned above, few lenders will lend more than 80% of the value of property to you and your business. Owner occupied purchases can usually borrow more and pay lower interest rates than investment purchases. The reason of course is the perceived risk involved.
On top of that lenders will want to be sure you can handle your loan. Therefore, you’ll generally need 3 years worth of accounts, several months worth of bank statements, and an asset and liability statement from your accountant.
How Much of Deposit Do I Need For A Commercial Mortgage?
For most owner occupied property purchases you’ll need to put down at least 20-25% of the properties value. For investment properties you’ll have to put down 25-35% due to the increased risk of default. However, these are not hard and fast numbers and depend a great deal on your business’ financial health.
Can I Get An Interest-Only Commercial Mortgage?
It’s still possible to find lenders willing to offer interest-only commercial mortgages. However, the pool of lenders is smaller which means it’s less competitive, which in turn means higher interest rates. Moreover, you’ll be capped at borrowing up to 75% of the value of your property and possibly less depending on the sector of your business.
Finally, keep in mind that an interest-only mortgage means you’re not repaying any of the initial capital. This means at the end of the term, you’ll still owe the same amount you did at the start.
Can I Get a 100% Commercial Mortgage?
No UK mortgage lenders currently offer a pure 100% LTV commercial mortgage. However, you may see some brokers advertising 100% LTV commercial mortgages, so what’s the deal?
Basically, to get a so-called “100% LTV Commercial Mortgage,” you have to offer up some additional collateral and/or assets to secure the loan. This additional collateral will have to be worth at least as much 25% of the value of the property, as you’ll still face the normal 75% LTV cap.
Therefore, in effect you’d be getting a secured loan, on top of, or a regular commercial mortgage. Whether or not you’d pay the same interest rate on both would be up to the discretion of the lender. Moreover, keep in mind a larger loan will mean larger fees, as most are charged on a percentage basis.
How to Apply For A Business Mortgage?
If you want to find out more about business and commercial mortgages you can visit our page: Top 17 UK Commercial Mortgage Providers: Compare 2019 Rates.