Commercial mortgages

A commercial mortgage is probably the best way to finance the purchase of buildings and land for business purposes. It provides the most flexible and affordable finance solution. With commercial mortgages the lender has a legal claim over the property until the loan has been repaid in full.

Commercial mortgage loans can be split into two distinctive categories – 'owner occupier' where the borrower is purchasing a business premises and 'commercial investment' where the borrower is purchasing property as an asset to rent.

The commercial mortgage market is characterised by complexities not present in the residential and buy-to-let markets. The market in general does not feature the dynamic and highly competitive price points seen in the domestic market. However, there are increasing numbers of lenders offering tranches of fixed rate money for small and medium sized loans.

Unlike the simple calculation approach used to make lending decisions in the domestic market, the commercial market is based on complex pricing models and the verdict of lending panels at each individual lender. All lenders, above a certain minimum loan value (normally £250,000), will go to the money markets and price up a transaction based on a bespoke margin and SWAP rate price (the rate at which banks and building societies lend each other money).

In simple terms, loan to property values (LTV) are dependent on the industry sector and the proprietor circumstances in the owner-occupier arena. In the commercial investment market LTV is primarily influenced by the quality of tenant. In general, for small or medium sized loans a good yardstick for the borrower to consider is an approximate maximum LTV of 75%. However, certain lenders may offer 80% or more LTV in some cases.

Other banks will insist on a 'rental coverage ratio', insisting that the estimated rental should cover the mortgage repayment by a certain percentage – 130% is an often-quoted ratio. For example, the bank's valuer estimates that an office block will bring in £72,000 per annum in rent. If its requirement for rental coverage ratio is 1.3 (130%), the maximum annual interest amount on the mortgage will be £72,000/1.3 = £55,348. Assuming an interest rate of 6%, this means it will lend a maximum of £923,000.

The length of a commercial mortgage loan period tends to be a maximum of 25 years and is often around the 15 year mark.

Borrowers should also be aware of the fees in the commercial mortgage market. Typically there will a lender fee of 1% and a more expensive commercial valuation than would be applicable to a similarly valued residential property. Given the nature of the complexity of titles and covenants on many commercial properties, a higher legal cost will be incurred; not only from the borrower's solicitor but in many instances the lender uses its solicitor in parallel to validate the quality of the work. This cost also needs to be factored in.

The value of a consultant within this field cannot be overstated, due to the bespoke nature of every single commercial mortgage transaction. A good consultant should know what he or she is able to achieve for the customer and be able to negotiate the best rate with lenders.

Pegasus Funding Resources does provide commercial mortgages and bridging loans directly but we also work with a number of brokers to give you a competitive range of quotations.

To find out more please contact:

Richard Olsen on 0203 327 0567 or email: info@pegasusfunding.co.uk.

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Property investment

Buying commercial premises can be a good investment. Owning a property gives your business stability. The property itself can become a significant asset. You may even be buying a business that is tied into the property such as a hotel, public house or café. Commercial mortgages can be used for a number of purposes such as:

  • Constructing a new building.
  • Moving to new premises.
  • Expanding facilities.
  • Modifying your existing accommodation.
  • Purchasing an office building in conjunction with your Self Invested Pension Plan (SIPP).

Funds of 70% and sometimes as much as 85% of the market value or purchase price can be advanced. The lender will often want to see three years’ good accounts. Higher loans to value (LTV's) may be achievable where you are buying as a sitting tenant.

Mortgages are usually for a minimum of 15 years. It must be remembered that the property itself is at risk if payments are not made on time.

When the business circumstances are not standard it is possible to find lenders who will offer:

  • Fixed, variable or capped rates.
  • Flexible repayments.
  • Interest only loans with bullet repayments at the end of the term.
  • Capital repayment holidays.
  • Bad credit commercial mortgages.
  • Self-certified commercial mortgages.
  • Business start-up mortgages.
  • Small business mortgages.
  • Commercial re-mortgages.
  • Woman's business mortgages.

To find out more please contact:

Richard Olsen on 0203 327 0567 or email: info@pegasusfunding.co.uk.

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Commercial bridging finance

Commercial bridging finance is a short term loan which enables businesses to seek longer term finance solutions for their commercial property.

Why use commercial bridging finance?

  • To raise capital for development projects or commercial property refurbishment.
  • Refinance a commercial property to raise capital.
  • Purchase a commercial property at auction with a completion deadline.
  • Purchase or refinance a commercial property that requires renovations or cannot be mortgaged in its current physical state.

Who would use commercial bridging finance?

  • Property investors.
  • Property traders.
  • Business community.
  • Business owner-occupiers.

First or Second Legal Charge?

If this is the first loan that you have taken out on your commercial property, speak to our expert Pegasus Funding Resources consultants who can advise you on the best, tailored borrowing terms for your business.

If you have already taken out a loan or mortgage secured against your commercial property, we can help you to acquire further financing.

To find out more please contact:

Richard Olsen on 0203 327 0567 or email: info@pegasusfunding.co.uk.

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