Understanding Business Mortgage Fees
There are a range of fees, which could apply to your mortgage. It's essential to understand the fee structure before going ahead with an application.
In some cases, charges make a commercial mortgage that otherwise seems competitive more expensive than an alternative product.
For example, a mortgage with a low interest rate but steep arrangement fees might be costlier than one with no arrangement fee and a slightly higher interest rate.
Some of the typical fees associated with UK commercial mortgage include:
- Arrangement fees are the type of fees added to the mortgage after it's been approved. Be prepared that some lenders may request it sooner to safeguard against their offer being turned down. For loans with a value of up to £1 million, arrangement fees are usually 1-2% of the loan value.
- Valuation fees are relatively straightforward and cover the cost of a valuer visiting the property and writing a report. You can expect to pay approximately £500 for a simple valuation for commercial mortgages, but it can be much higher in some cases. It is payable to the lender once you accept their offer.
- Legal fees: you'll have to pay your own legal costs plus the lender's legal fees. It's generally around £500 for each side.
- Broker fees: A broker charges a fee for their help and expert advice throughout the mortgage application, usually up to 1% of the loan value.
It's always crucial to have a full breakdown of all charges involved with your mortgage.
Some costs are rolled up in the first mortgage payment, so they won't always be transparent, and you could think you're making initial repayments when in fact, you're only paying set up costs.
Benefits of Using a Commercial Mortgage Advisor to Apply for a Business Mortgage
So, if you don't need to use an advisor and are reasonably happy to identify the top deals on the commercial mortgage market, why do you need advice?
Here are just a few of the compelling benefits of working with Revolution Brokers.
- Exclusive mortgage deals - some of the most specialist lenders in the UK won't deal directly with any applicant. Broker-exclusives offer huge advantages over any product you'll find on the open market.
- Customised applications - if you have any risk factor, such as bad credit history, it's likely you will instantly ramp up the interest charges and be asked for additional security. A broker will strengthen your application and suggest ways to improve the associated risk factor, reduce your costs, and ease the requirements.
- Independent advice - in some cases, a commercial mortgage isn't the right option! If you don't match general criteria, or there is a cheaper borrowing solution out there, our independent team of accredited advisors will be sure to let you know.
Remember that commercial mortgages are complex and can require extensive negotiating to pair up exit strategies and timelines, so we'd always recommend using a broker to ensure the process doesn't eat into your operating hours.
Business Mortgage Loan Eligibility and Lending Criteria
Every lender will have its own lending criteria that you’ll need to meet to be offered a commercial mortgage. The checks they carry out could include:
- Your debts and the cash flow enables them to ascertain how financially healthy the business is
- The projected income
- Whether you can meet the requirements for the deposit
- How much rental income you will receive
- Your assets credit and general income
If a commercial mortgage isn't right for you, there are other options you can consider, such as:
- Bridging loans can help with a property purchase if you need to sell an existing property first.
- Short-term loans: if you need access to funds but don't want to make a long-term financial commitment, this could be the solution. Businesses could use loans to cover cash flow working capital and other types of expenditure.
- Unsecured business loans: lenders now offer unsecured business loans up to £350,000 rates are subject to underwriting anything from 1.9% – 22%.
Typical Business Mortgage Lender Requirements
Although business mortgages are hugely variable, most lenders will have several requirements and conditions of lending:
Revolution Brokers works with a broad range of clients, from care homes to restaurants, holiday let owners to hotels - we can provide more information about the applicable terms for your business mortgage on request.
How Do I Choose Commercial Mortgages UK?
There are two primary types of mortgage - an owner-occupier mortgage and a commercial investment mortgage.
Owner-occupier means you're buying a property through a secured loan to purchase somewhere to trade from. For example, that could be an office, warehouse, workshop or yard, for example.
Commercial investment mortgages are used to purchase sites to rent out to other business clients.
You must know what type of loan to apply for, as it's inevitable you will be turned down if you apply for an incorrect category of commercial mortgage.
Can I Get a Fixed Rate Business Loan With Commercial Mortgage Advice?
Potentially. Fixed-rate commercial mortgages aren't a widely available product, and most will be based on a variable rate.
Usually, that's a fixed percentage above the base rate. Fixed-rate business loans can be arranged with the help of an independent broker, but they're generally only available on smaller mortgages of up to £500,000.
Will a Commercial Mortgage Broker Improve my Approval Chances?
Undoubtedly, a broker negotiates directly with a broad network of lenders, selecting optimal products from across the whole of the UK commercial mortgage market.
Lenders don't work on published rates tables or standard terms in commercial lending.
Instead, they'll have a defined risk profile and automatically reject any applicant who falls outside it.
Therefore, having a broker to negotiate, advocate, and structure applications that navigate the risk criteria improves your chances of approval.
What Should I Look For in a Commercial Mortgage Advisor?
Commercial mortgages are secured against the property and one of the most significant investments your business might make - whether that's trading premises or buying an investment property to let out.
Either way, finding the right commercial mortgage for you is vital, and having an expert commercial mortgage broker by your side can save thousands of pounds over the lifetime of a mortgage.
A commercial mortgage broker is a secret weapon in navigating the vast number of mortgage products with ease - and comparing every deal like-for-like you're making sound business decisions.
Here are some of the key benefits to working with an independent commercial mortgage broker:
- Access to exclusive deals - many top lenders work exclusively with brokers and don't offer products with competitive rates directly to the public or business representatives.
- Negotiating power - our experience in the commercial mortgage sector gives Revolution the knowledge and leverage to negotiate everything from terms to arrangement fees, interest rates, and exit penalties.
- Independent advice - an unregulated commercial mortgage product varies substantially in terms of costs and charges. A commercial mortgage broker is invaluable in assessing whether the deal on the table is the best option for your commercial investment.
Revolution clients report tremendous savings, often through simply redirecting their application to a more flexible lender or working with us as their commercial mortgage broker to identify the most beneficial commercial mortgage products on the market.
Business Mortgage Cost Savings Through an Independent Commercial Mortgage Broker
If you're looking for a commercial mortgage broker, the first step will be to assess your circumstances and the critical priorities of your commercial mortgage application.
For example, that might be:
The key is to ensure your commercial mortgage broker is independent and whole-of-market.
Why? Because a broker who isn't independent is hugely limited in the products they can recommend - they can only sell mortgages from a restricted list of deals available.
Whole-of-market means that the Revolution commercial mortgage brokers team can scour the UK marketplace and recommend any deal, financial product, and lender that we feel will be to your advantage.
- The lender might ask the business to switch their normal bank account to the lending provider to secure better business mortgage rates as a current account customer.
- Repayment terms can be adjusted but will usually run up to 25 years - note that this can often be extended or shortened depending on the nature of the business mortgage.
- Business mortgage LTVs tend to go up to 80% (against the property value) but again can be varied if you have sufficient security available.
- Some business mortgage lenders require personal guarantees from the company directors before lending to an incorporated business.
- Variable business mortgages will charge interest linked to either the Bank of England base rate or LIBOR.
- Most commercial mortgages or owner-occupier mortgages start from as little as £50,000 and can up to tens of millions, so there aren't any arbitrary caps in place.
- Minimum monthly interest costs to maximise your profit.
- Fast turnaround to secure a new premise quickly.
- Flexible terms to adapt to your changing trade.
- Generous criteria if your business is newly established.