A commercial mortgage broker is someone who acts as an intermediary to help businesses obtain the best possible deal for the finance that they require, and also help banks and other lenders find businesses who they want to lend to.
We are constantly exploring the ever changing finance markets to understand what the different lenders have to offer. It is important for a commercial mortgage broker to not only know which lenders offer the best rates or the highest loan to values, but to also understand their underwriting and what types of property or business they like and don’t like, their preferred locations, what experience they like to see, how their view credit history issues and how fast they are getting a commercial mortgage completed.
Commercial mortgages can be complex products, so we are here to make the process as simple and straightforward as possible for you.
Expertise: We have many years of experience in sourcing and arranging commercial mortgages for businesses with a huge variety of different circumstances. This means we have developed extensive knowledge of the market which we use to help you find the best solution for your financial needs.
Independent: We are an independent broker – We have access to the whole market which means we are able to source a wide range of products from a large selection of lenders.
On your Side: We are here for you. Our job is to source a great deal for your individual circumstances. We are completely transparent and will ensure that you know about every aspect of your available options, meaning you are not caught out last minute by any surprise terms or fees.
Commercial mortgages and remortgages from £100,000 to £250 million – We provide commercial mortgages from £100,000 upwards. We have an extensive range of specialist facilities for commercial mortgages in excess of £1 million.
Repayment terms from 3 to 30 years – Our extensive panel of lenders enables us to typically offer repayment terms ranging from 3 years up to 30 years.
100% commercial mortgages available – In order to arrange a facility that will provide 100% of the purchase price (or open market value) of a commercial property, additional security will normally be required. Without additional security the loan to value is usually limited to a maximum of 75%.
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An owner-occupied commercial mortgage is where the borrower plans to use the mortgaged property or land for their own business. This could be to purchase the property their business is already occupying and renting, or to purchase a new property to move their business in to, or as additional premises to expand their business.
You can use a commercial mortgage to fund a commercial buy-to-let property. This is where an investor buys property or land (for example a warehouse, convenience store or farm) to rent it out to another business.
Commercial mortgages can be used to fund the purchase of a residential property that has the intended purpose to be rented out. They are more commonly used by professional landlords who have large property portfolios or have set up a buy-to-let limited company.
One of the most common/traditional methods for sourcing a commercial mortgage is through a high-street bank. High-street banks usually offer better rates and higher loan-to-values than the alternative commercial lenders. However, the high street banks tend to have much stricter lending criteria and more checks, consequently taking longer to arrange.
Challenger banks are smaller retail banks that often specialise in a specific area to help them compete with the national banks. Their lending criteria is often more flexible than those of high-street banks and some may even lend to those with a bad credit history. However, you may find that their interest rates and fees are slightly more expensive.
Specialist commercial mortgage lenders are generally the most flexible overall. They will often be prepared to offer loans to younger, less-established companies, or those with a poor credit history.
Variable and fixed rate options available:
Variable rates tend to follow the Bank of England’s base rate, or LIBOR (the rate at which banks lend to each other) meaning the rate you pay can go up and down throughout the term of your commercial mortgage. This means you will benefit if there is a fall in interest rates, but you will incur higher interest charges if interest rates rise.
Many lenders offer a fixed rate deals, some can be fixed for as long as 10 years. This means the interest you pay is fixed for that period of time, keeping your repayments the same each month regardless of what is happening to base rates. This will allow you to budget better and benefit if base rates increase, but you won’t benefit if the lender’s base rate drops.
An interest only mortgage means that you only pay the interest each month and don’t repay any of the capital during the life of the mortgage. This has the advantage of keeping the monthly payments down, but you will still owe the capital balance at the end of the mortgage, which must be cleared in full or refinanced with a commercial remortgage.
A mortgage with a set maximum and minimum interest rate is referred to as having a ‘Cap’ and ‘Collar’. This is essentially a form of variable mortgage.
The ‘cap’ dictates the highest level that the interest rate could go up to. Similarly, the collar will set the lowest level that the interest rate could fall to.
It is possible to have a cap without a collar, therefore have no fixed minimum interest rate.
The cap and collar will usually apply for a set period of time.Advantages of a Cap and Collar
Interest rate swaps are a way for businesses to exchange existing variable rate interest payments for fixed rate payments. They are essentially ‘hedging’ their risks by trying to predict if long term interest rates are going to change. If a company thinks that interest rates are going to rise over time they may want to swap some of their variable interest payments to fixed interest payments so that they have greater certainty and are not affected by future interest rate rises.
These transactions take place between 2 parties, who will be borrowers, banks, investors or hedge funds. The party wanting to swap the variable rate payments is known as the receiver or seller, whilst the party swapping its fixed rate payment is the payer.
Banks usually arrange swaps, by bringing the 2 parties together. This means that both parties therefore only have to worry about the credit worthiness of the bank involved and not with the other party.
When it comes to a commercial mortgage, your business trading history is very important. This will be the tell-tale sign as to whether you will be able to afford the mortgage repayments. If you have a successful history, you will have a higher chance of receiving better rates and terms.
Most commonly you will need to provide a potential lender with at least 3 years of filed accounts, plus your predicted (forecast) profit and loss statements for the future.
Whether you are going to occupy the property yourself or rent it out to other businesses. This will affect the loan to value, the rates you will pay and how much you can borrow.
These fees are payable to the lender and are usually around 1% - 2% of the loan amount. Most lenders will add these fees to the loan after it has been approved. However, if you do add it to the loan, you will also be paying interest on this over the mortgage term.
You will need to pay for a valuation of the property, which will be payable to the lender after an initial indicative offer has been made. Prices will vary depending upon the type and complexity of the building. Fees tend to be higher than for a residential property valuation as the valuer also needs to take account of marketability and rental income.
You will be responsible for paying your own legal fees as well as the lender’s legal fees.
The broker will usually charge you a fee for arranging the loan and liaising with the lender. With ourselves, a typical broker fee will be no more than 1% of the mortgage amount.
Last updated: 22 November 2023 | © KIS Bridging Loans 2020