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When Are Commercial Mortgages Used?

Commercial mortgages generally take over where business loans finish. Business loans up to £25,000 are unsecured, but for larger amounts lenders need security in order to reduce the risk to themselves. Because of the legal and administrative costs of taking security on commercial property it is considered uneconomic to borrow under £50,000 this way, and some lenders have a minimum of £75,000 or more.

What Can Be Offered As Security?

Generally lenders take the property you are buying as the only security for the loan, which is typically 70% of the value of the property, and ask for a cash deposit for the balance of the purchase price. If you don’t have the cash you can offer the lender additional security, which is typically other property which you have considerable equity in, but could be a charge over other assets such as an insurance policy or shares.

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How Long Are Commercial Mortgages For?

Commercial mortgages are typically from 3 to 25 years. Shorter term finance is also available and this may be called a bridging loan or property development loan, which you may have from a few weeks up to 24 months.
Are all commercial mortgages variable rate?
No, but most are. Typically a rate will be quoted as X% over base or LIBOR, and this in residential terms would be called a tracker mortgage. Fixed rate mortgages are available and for amounts under £500,000, where the lender takes the rate risk themselves, they may be advantageous. But mortgages where the lender passes the risk on to the borrower by using a “Swap” contract are best avoided. These complex derivatives are not suited toSME borrowers.

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Why Apply For A Commercial Mortgage

  • Develop existing property
  • Develop new property
  • Extend current premises

Benefits Of Commercial Mortgages

  • Residential developments and projects
  • Commercial developments and projects
  • Buy land