Benefits of commercial owner-occupier mortgages
Key benefits of commercial mortgages include:
- Increased business security by taking ownership of your key premises
- Fully benefit from the investments you make into your places of business
- Strengthen your balance sheet with high value assets
- Protect against future rent increases
- Raise money from your property assets
Commercial mortgages provide a funder with security over property, reducing the risk to a funder if you were to default on your facility so they can put more favourable terms forward to you.
Often commercial owner-occupier mortgages can be the cheapest facility a business is able to access.
What is an owner-occupier mortgage?
A commercial owner-occupier mortgage is a type of mortgage loan used to finance the purchase of a property that your business intends to occupy and use for your business operations. This type of mortgage is different from a commercial investment mortgage, which is used to finance a property that the you intend to rent out to tenants.
These types of facilities are commonly used by businesses who wish to purchase their main trading premises as it can require a large amount of investment that cashflow doesn’t support alone. Commercial owner-occupier mortgages can also be used to raise money from existing properties that are owned without any existing debt (unencumbered) or refinance existing facilities.
A lender will evaluate your creditworthiness and other factors to determine whether you’re eligible for the loan, with consideration on both your affordability, and the value of the proposed property for them to take security over. Businesses will need to evidence a good level of affordability for the mortgage repayments.
The amount you can borrow will depend on the value of the property you are offering as security up to a maximum LTV, for example, “65% LTV”. This stands for “Loan to Value” and means if your commercial premises was worth £1,000,000 the funder would lend a maximum of £650,000.
Interest rates will vary depending on your unique credit and affordability circumstances. Typically the interest rate on a commercial owner-occupier mortgage will be lower than an equivalent unsecured business loan as there is less risk to a funder where they have security to protect them. Facilities can be available on an interest-only basis, or part-and-part with some of the facility on an interest-only structure and the remainder on a capital-and-interest repayment arrangement.
How does an owner-occupier mortgage work?
A commercial owner-occupier mortgage lender will typically assess a facility as follows:
- Loan amount: The lender will provide a loan of to a maximum level relative to the value of the property you are offering as security. Funders may also limit this depending on your business’ turnover and affordability- how much the funder believes you can afford to repay per month.
- Deposit: You will be expected to provide a down payment as part of the purchase of the premises, often a minimum of 30% of the purchase price/value of the property. This isn’t required when refinancing property you already own.
- Eligibility: You will need to meet certain underwriting requirements, such as a strong credit history and proof of sufficient income and profitability to make regular mortgage payments. We will detail factors, such as rental payments that will no longer be made once you own the premises, to funders to strengthen our proposals to funders.
- Loan term: Commercial mortgages are often structured on repayment profiles up to 15 years, with an initial fixed period of 3 – 5 years.
- Repayment: Typically repayments are made by a fixed monthly direct debit. Some facilities are on a variable rate, whereas others have an initial fixed-interest rate period that then switches to a variable rate after the fixed period ends. Some funders will permit you to make overpayments and/or settle in full, often with benefits from settling early. Some funders may, however, apply a penalty for settling too early into the facility within the initial fixed-rate period.
