We all concur that taking mortgages makes our life more comfortable and it’s a prudent financial and investment move as well, where instead of spending all your savings, you choose an installment based plan, which allays your vulnerability. Making a decision about whether to take a mortgage plan is easy. The intricacies involved in deciding which plan is favorable to you are rather much more convoluted like Mortgage rates, terms, etc.
Commercial mortgage rates in the UK are determined according to the information provided by the borrower and the information portfolio presented before the lender. Other factors that actuate the mortgage rates are:-
- Loan amount
- The credit history
- The loan to value ratio (LTV)
- Lender type and their pricing system
- The term and quality of term and lease (in investment properties cases)
- The financial health of the business
Basically, interest rates depend on the risk factor. Higher the risks, higher are the rates. If the business for which you are planning to take a commercial mortgage is stable and well established, the interest rates will be quite low. Commercial mortgage rates in case of investment properties are higher than others.
The commercial mortgages are both fixed and variable. Although, the agencies providing fixed rates are an exception in the case rather being a norm. The variable rates in the UK are formulated according to:-
- The Bank of England Base Rate: It is monthly reviewed by the Monetary Policy Committee and the most common interest rate followed in the UK
- LIBOR (London Inter-Bank Offered Rate): It is a global benchmark rate used for commercial lending purposes in the UK
The mortgage loan process also involves different kinds of fee:
- Lenders charge a nominal amount of Arrangement Fee which is generally payable after completing the process. You don’t have to pay this fee upfront. It is usually added to the loan amount. Some lenders also charge a commitment fee of usually 0.25% after completing the formalities. It is deducted from the arrangement fee
- The Business Mortgage Lenders make estimations of the property after valuing it by their panelists. They charge a certain amount of Valuation Fee which is usually payable when an offer is issued pertaining to valuation. We provide our customers with a choice of paying the valuation fee as late as possible during the process. The valuation of the commercial property is too complex a process, which means fees are generally higher than the residential ones.
- Commercial Mortgage Brokers charge a nominal Broker Fee of 1% or more for business mortgages
- The commercial mortgage application process is much complex than the commercial buy to let mortgage (residential). It involves separate legal representation in addition to your own Legal Fee. This other legal fee is also paid for by the applicant/borrower
Loan to Value Achieved
Lenders generally cap the maximum LTV in certain domains. In the case of owner-occupied commercial mortgages, most of the industries can borrow up to a maximum of 80% LTV. Interest rates are quite low until this level. The LTV for commercial investment property is limited at 75%.
For calculating the value, lenders tend to work on following valuations:
- The value in the Open Market- This valuation is done when the price of a property is determined in an open market by a willing buyer and seller
- The forced sale value- The value of certain property calculated in case of a forced sale situation
- Ongoing Value - This valuation is done by assessing the value of the ongoing business
- Investment Value - This is determined by assigning a value to the strength of the lease and tenant in the respective property. It facilitates for the future income from the lease and premium generation on the open market vacant possession value
Tenure for Commercial Mortgage
The term for Commercial Mortgage is shorter than other mortgages. Usually, the commercial mortgage lender accepts a maximum term of 20 years, where in some cases it goes to 25 years. Some lenders fix the lending term according to the time remaining on the lease. In the case of repayment mortgages, if the borrowing term is short, then the interest paid per pound borrowed is also short.Add paragraph text here.
