What is a Commercial Mortgage ?
This type of funding is for businesses that want to buy a property that they will operate from. It is different to a commercial investment mortgage which relies on tenant income.
Mortgages are a long term loan, typically structured so that it is repaid (amortised) over 15 years or longer. The security the lender will require will be a legal charge over the property, however many lenders also require a debenture.
Some lenders have maximum loan periods, for instance 5 years, therefore the loan will not be fully repaid and you will need a new loan when it expires.
All lenders have maximum Loan To Value (LTV) policies which mean you can borrow up to a certain percentage of the property value. A typical LTV maximum is between 65% and 75%.
Loans of this type are typically priced as a lender margin over the Bank of England Base rate (often just called “the base rate”) or over LIBOR.
Margins charged by lenders are typically from 2.5% upwards. There is usually an arrangement fee of 1% of the loan value upwards. Some lenders charge early repayment fees. Lenders offer both variable and fixed rates.