Commercial Mortgages generally fall into two categories – Trading Business or that of Commercial Investment.
A Trading Business* mortgage is required if you are a business owner-occupier wanting to purchase a premises to trade from. Whereas an example of Commercial Investment could be that of a property investor wanting to buy a commercial, or semi-commercial property to let out to other businesses.
Here are our top 5 considerations that may affect the deal, rate, or terms you may be able to secure – but as ever, speaking to an expert is crucial!
INDUSTRY – Simply put, some lenders prefer certain industries over-and-above others. This often isn’t a case of favouritism, but more a case of understanding certain businesses better. Manufacturing may be complicated due to the varied use of a building, fast-food outlets may be at high risk of fire due to the cooking aspect, and agriculture may require alternative payment plans due to the seasonal nature. As a result of this, some lenders will offer a higher, or lower rate based on THIER knowledge and how comfortable they are with the industry in question.
DEPOSIT – The client contribution, or “deposit” that is required for a Trading Business Loan is generally a minimum of 25% of the purchase price, however some lenders may ask for up to 50%. We search the market to find the most suitable deal for you, based on your preferences. It’s often the case that the higher your deposit, the lower the interest rate. This concept is known as Loan-to-Value (LTV).
AFFORDABILITY – Affordability is usually at the lender’s absolute discretion – the market has different methods of assessing this and varied parameters. A consideration here would be the entity that is purchasing the property. Will the lender be assessing the affordability of a person, or a Limited Company. a Partnership, or a Pension. Speaking with us, in conjunction with your accountant early, can be beneficial.
CONSTRUCTION OF PROPERTY – Closely related to industry, the construction/material of the property one may be purchasing will dictate the deals or rates available. From a lenders point of view, they may reduce the LTV (Loan-to-Value) and request a larger deposit dependent on their attitude towards certain properties. Some examples of construction materials could be bricks and mortar, steel portal frame. timber, or concrete.
VALUE-ADDED-TAX – As a general rule, the sale/purchase of commercial properties is exempt from VAT, however there are instances whereby it may be payable. Checking early is essential as this could result in a substantial increase in upfront, or “cash” costs. VAT at the standard rate is applied to commercial property transactions where the property in question is new (less than 3 years old) or where the vendor has elected to charge the VAT. An example of when the latter could occur could be where a property has been refurbished. and the vendor is looking to recover the VAT costs that were associated with that work. Needing to factor in 20% of the purchase price could mean a purchase has less funds to use as a deposit, thus potentially losing out on a desired deal. There are loans designed specifically to cover the VAT element of a purchase however, as ever, they are assessed on a case-by-case basis.
If you would like to discuss any of this in further detail – please contact us!