Our Guide To Bridging Loans and Commercial Mortgages
While residential mortgages have seen lending being seriously curtailed due to tightened risk attitudes in the years following the global financial crisis, the government has made clear to lenders that the availability of business borrowing (including commercial mortgages) must increase to help reinvigorate the UK economy.
And while there may still be plenty of room for further recovery, it’s worth bearing in mind that back in 2005 Bristol’s commercial property market was the second best in Europe.
Understanding commercial mortgages
If you’re new to buying commercial property, it’s easy to assume that a commercial mortgage is just the same as the residential mortgage you used to buy your home. Although there are similarities, it’s important to be aware of the differences before you go down the route of borrowing on commercial terms.
Like all mortgage lending, commercial lenders price their products based on an assessment of the risk involved — and the hard truth of the matter is that business lending is considered a higher risk than residential lending. This means that commercial mortgage rates are generally higher than mortgage rates for residential properties of a comparable value.
Similarly, many lenders restrict commercial mortgage lending to a maximum of 75% or 80% of the property value, and this can mean a significant deposit requirement at a time when you are likely to have a number of other business outlays.
As with a residential mortgage, commercial lending will be secured against the mortgaged property. Just as failure to repay your home mortgage can result in your house being repossessed, failing to keep up your commercial mortgage payments could ultimately result in repossession of your business premises.
It’s therefore vital that you fully review and understand the cost and repayment terms of your commercial mortgage as part of your overall business plan. You need to consider carefully, and realistically, whether you will be able to afford the mortgage repayments if the mortgage rate were to increase or, crucially, if your business were to encounter cash-flow problems.
Overall, purchasing rather than renting your business premises can be a sound long-term investment, however there are many factors to consider. It’s therefore recommended that you take professional advice from your business adviser, a mortgage broker or other specialist before settling on a commercial mortgage deal.
The dynamic nature of the commercial property market means it’s often necessary for purchase funds to be required more quickly than a commercial mortgage application might typically allow, and this is where bridging finance comes into play.
Bridging loans are broadly similar to other types of mortgage lending, but are specifically designed as a short-term lending solution, with an expectation that the loan will be fully repaid within a specified period (usually when a full commercial mortgage application has been approved and funds released).
Bridging finance can have an extremely fast turnaround, and lending decisions are often based on criteria such as the property value, rather than in-depth income assessment. Bridging loan rates are, unsurprisingly, higher than ‘normal’ mortgage rates, but this reflects the specialist and short-term nature of the lending.
Steve Mears can introduce you to specialist 3rd party providers of commercial loans and bridging finance, ensuring you get the optimum deal for you and your business. So call them today on 0117 325 1130 (lines open: 8am – 6pm) for a chat and no-obligation quote. Or out of hours just fill out the Request A Call Back form on the right.