If you are a business owner looking to own your property that you currently run your business from or have an opportunity to purchase a trading business with a freehold, then owner-occupied commercial mortgage is looked at more favourably than investment mortgages, as lenders feel there is less risk.
Owner-occupied commercial mortgages are available to individual sole traders, partnerships, limited companies or limited liability partnerships. Traditionally lenders will assess the maximum levels of borrowing based upon the financial strength of you trading business.
This will include an affordability calculation, the value of the any supporting security provided by the property itself and other property offered to support the application.
Lenders will analyse your trading accounts, normally the previous three years. An assessment is made, and they will then calculate the adjusted net profit (Earnings Before Interest, Depreciation, and Amortisation).
The owner-occupied commercial mortgage lenders will assess any personal drawing requirements you take by looking at bank statements, and a detailed personal income and expenditure statement.
If you are selling your house and living above the business premises, then your personal expenses could fall significantly and the business could cover some of those personal expenses.
Lenders will typically lend up to 80% of your business, particularly if this is a preferred sector of the bank’s policy. If your business is profitable and you have the right levels of experience, the lender may advance up to 100% of the purchase, by taking additional tangible security.
This process is often a first step for business owners to move into owning commercial property.
The main difference between a commercial mortgage and a residential mortgage is that the value of the land or property is usually much larger.
Commercial mortgages are secured against commercial premises such as shops, factories, or offices and cannot be secured against your residential property.
They are used to buy business premises or to buy a business outright. The lending criteria is based on your business’s ability to pay the mortgage repayments.
They are typically for a limited company, Special Purchase Vehicle (SPV), Limited Liability Partnership (LLP) and partnerships. The loan is secured on property which is not your residence. If you’re planning on buying a property to rent out for extra income, you’ll need a commercial mortgage.
When it comes to a commercial mortgage there are no set rates, this means that every single application that is submitted to a lending manager is reviewed thoroughly as they look into the risk levels.
Lenders will typically consider up to 75% loan-to-value. So, you will need to have a deposit available anywhere from 25% and above, depending on the lender’s criteria and your desired interest rates, but this will vary between lenders.
On average a commercial mortgage will last from 3 to 25 years, if you are in the market for a shorter-term loan then you might need to look at a bridging or development loan.
Whether you're a first-time homebuyer, looking to refinance your existing mortgage, looking for lending options for your business, or needing help finding the right insurance coverage, we've got you covered. Contact us today to schedule a consultation and take the first step towards achieving your financial goals.
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