Expat Commercial Mortgages For UK Property
A commercial mortgage is exactly what the name suggests in that a property that is not a residential to live or rent out but a commercial property where a form of business may function or trade from. Traditionally, sourcing the right commercial mortgage as an expat for your business could be a complicated and time-consuming process. With so many commercial mortgage lenders available, it was virtually impossible to be sure the rates you accept are the best the market can offer.
Commercial mortgages can be utilised for properties that businesses will trade from or as a way of purchasing an investment, such as a buy-to-let. They can be seen as a complex form of lending; therefore, knowledge of the industry is recommended when arranging.
Meeting The Lender’s Commercial Mortgage Criteria
Most banks and building societies offer commercial mortgages, but you must satisfy their criteria. Most lenders require a positive personal credit rating and clear evidence that your business is creditworthy, although some lenders may accept applications where there is an adverse credit history and charge a higher interest rate and arrangement fee.
Most lenders will apply a loan-to-value ratio and will expect you to invest a proportion of your own money in the purchase. The more you are willing to invest of your own money, the greater the chance you will have of securing a loan for the remainder.
The loan-to-value ratio is the loan amount divided by the current market value of the property expressed as a percentage. If a property has a current value of £200,000 and a loan is required for £150,000, the loan-to-value ratio is 75 per cent.
The lender’s decision will also depend on your current business circumstances – a commercial lender will expect your business to be stable and profitable and have audited acounts which could be for 2 to 3 years worth.. They may ask to see your business plan and long-term financial projections, to assure themselves that your business has, and will continue to have, the ability to make repayments on the loan.
Some lenders may impose restrictions on the uses of commercial premises. You will need to consider carefully all the terms of any lending agreement, particularly as the loan period may be for 15 years or more. This is a complex area and it’s essential that you seek specialist advice from your solicitor.
What commercial mortgage lenders need to know
Any mortgage lender will want to be sure that your business is on a sound financial footing before agreeing to a commercial mortgage.
A lender’s main concerns are that:
- you will be able to repay the money
- the property is worth enough to cover the amount borrowed if you default
Set an upper limit of what your business can afford to repay every month. Don’t be tempted to over-borrow – doing so could deny your business the cashflow it will need to grow. Do not overestimate the value of a property. A lender will almost certainly appoint a surveyor or property appraiser to inspect and value the premises.
What Financial Details Will The Lender Require
You will be asked to provide information about your business’ financial performance, which will probably include:
- audited accounts for the last two or three years
- indications of current performance
a profit-and-loss forecast for the next year
- business bank statements for the previous six months
- identification of each partner or director in your business for credit-checking
- asset and liability statements for each applicant
- a business plan showing how the property will contribute to your cashflow and how you intend to repay the loan
If you are buying a business and property combined, it is likely you will need to supply the lender with additional information, such as:
- why the business is being sold
- projections on how the business is expected to grow
- details of any personal investment there might be
- credit status of the business
Bear in mind that you will almost certainly need to find a deposit – normally at least 25 per cent of the purchase price of the property. However, depending on the availability of security or other factors, some lenders may be more flexible.
Commercial Mortgage Fees and Costs
Interest rates vary according to the lender and the repayment options you choose.
Other fees and costs include:
- Arrangement or processing fees – these are fees that your lender charges for arranging your mortgage. A typical fee might be in the region of 0.5 to 1.5 per cent of the loan and is usually negotiable.
- Valuation fee – this is the fee charged by the lender for carrying out the valuation of the property and can vary according to the lender. Further costs are incurred if the lender insists upon a full structural survey to establish the valuation.
- Redemption penalty – if you pay off your mortgage early, you may have to pay an additional amount, which is also known as an early repayment penalty. This is usually applicable in the first three to five years of the mortgage, although it can sometimes apply after that.
- Legal and professional fees – these can include insurance, site surveys and preparation of legal documents.
There are certain other factors you should be aware of:
- Minimum level for the loan – commercial mortgages are usually only given for substantial amounts, ranging from £15,000 to over £1 million, with higher sums in other circumstances depending on the value of your property and the nature of your business.
- Period of grace – some lenders are flexible about late payments, underpayments or payment holidays – but you may incur increased interest charges.
- Personal guarantee – if you run a limited company, the bank may ask you for a personal guarantee as additional security, especially if the amount of cash you are investing is limited.
Here at UK Expat Pension Reviews we work with lenders to arrange bespoke commercial mortgage solutions for our clients, providing a tailored one-to-one advisory service, delivered face-to-face or remotely, depending on what suits you.