I’m currently working on a commercial mortgage for a client. I thought it appropriate to go through some points that were raised in our recent discussion about commercial mortgages.
So, most commercial mortgages are going through Tier 1. This is High Street lenders effectively. You can get fifteen-year terms if you’re doing it as an investment, and 20 years if you’re actually owner-occupier, but High Street banks tend to be capital and repayment.
The loan to values can be eighty percent for owner occupier, or 100 percent if you are looking to buy a portfolio which is tenanted. So if it can be shown that it’s genuinely under market value then effectively you may be able to do it without putting any money in. In saying this, a lot of lenders prefer to see some ‘skin in the game’.
Tier 2 tends to become a little bit more attractive. This is on the basis of a lower cost to repay because they will offer either a capital repayment, part and part, or interest-only facility. So, whilst they will potentially be slightly higher in terms of their interest rate, it may suit the strategy that you are operating. Because of that, tier 2 might be worth looking at.
Tier 3. There are less that get there, let us put it that way. But it can be used if potentially you have some adverse credit. So, if you have adverse credit, not within the last 12 months, but 12 months or older that can be explained away then tier 3 may well look to support you on that.
Now, commercial mortgage is obviously for property, but you can also use it for buying a trading business. So, there are two valuations that you get when you are buying a trading business that operates from a property, and one of them is called a market value and the other is market value one, so MV1.
MV1 tends to include an element of goodwill, fixtures and fittings, and things like that, so you can borrow slightly more if you are going to buy a business that is operating. Do bear in mind that if you are going to be an owner operator your maximum term is going to be 20 years. Also, if you are going to the High Street, it’s capital and repayment that you’ll be looking at.
If you are look to buy a commercial property, or even a trading business and you think we can help, please get in touch and we’ll be happy to have a conversation.