One of the essential factors in choosing which business mortgage to apply for is the rates on offer from your lender.
Here we look at how commercial mortgage rates are calculated, what makes a difference to the interest rates offered, and how to find the best deals on the UK market.
For more advice and support with finding the best commercial mortgage rates for your business, contact the Revolution finance Brokers team on 0330 304 3040 or drop us a message to firstname.lastname@example.org.
What are the Average Interest Rates on UK Commercial Mortgages?
Unfortunately, it isn't as simple as having a UK average.
Commercial mortgage lenders don't usually publicise their rates, or rely on standard terms since every business mortgage is bespoke to the company and circumstances in question.
In essence, the lower risk your application, the better the rates you will be offered.
How do Commercial Mortgage Lenders Calculate Interest?
Lenders can offer fixed-rate mortgages or variable loans to businesses.
Fixed-rate lending means that you pay a fixed amount over the initial mortgage period, often from two years to a maximum of ten. After the initial term, your mortgage changes over to the standard variable rate on offer at the time.
If you take out a variable commercial mortgage, this will be charged according to a percentage above the Bank of England base rate, and change as this fluctuates.
Which Mortgage is more Expensive - Commercial or Residential?
Commercial lending is usually more expensive since business mortgages present a higher risk than residential mortgage lending.
What Rates Should I Expect to Pay on Commercial Mortgage Borrowing?
Very roughly speaking:
- Owner-occupier mortgages, where your business is buying a property to trade from, will be charged at anywhere from 2.75% to 7%.
- Commercial investment mortgages for buy to let business properties are usually charged on rates starting at 3.5% and going up to around 6%.
How are Business Mortgage Rates Worked Out?
Your lender will need to understand the property you want to buy, what it will be used for, and whether you can afford the loan. Factors include:
- The type of commercial mortgage - i.e. investment or owner-occupier.
- What the value of the property is, compared to the mortgage value.
- Your credit history and trading record.
- Anticipated returns on the investment.
Where Can I Find the Most Competitive Business Mortgage Rates?
Every business wants to find the best rates available on their commercial mortgage, and this isn't easy to pinpoint since interest rates continually fluctuate. Business mortgages are tailored to each application, so independent advice is essential.
Using a broker is undoubtedly the best way to secure competitive rates since a whole-of-market broker can:
- Recommend the most suitable lenders, including niche and specialist providers.
- Negotiate rates and terms on your behalf.
- Tailor your application to ensure you meet the right criteria.
What are the Eligibility Criteria to Get the Best Commercial Mortgage Offer?
Lenders will look at a combination of factors to decide what interest rates they can offer:
- What sort of mortgage you need - why you are investing in a property and what it will be used for.
- The Loan to Value ratio - the higher the LTV, the higher the risk and therefore higher the interest rates. Most lenders need a deposit from at least 25%; so the more you can offer as a deposit or additional security, the more favourable your application.
- Credit rating - lenders will need to check if you have any adverse credit history. Where mainstream lenders cannot help, a broker can recommend specialist bad credit providers who will be able to support your mortgage requirements.
- Business history - the longer the business has been trading, and the healthier your operating profit, the easier it is to meet affordability criteria and therefore negotiate lower interest rates.
- How viable the investment is - this might include providing business plans, analysing the sector, or applying to a lender with experience in your industry.
- How much you need to borrow. Most commercial mortgages start from £25,000, and the value of the mortgage will dictate which lenders are best placed to offer approval.
What are the Terms and Rates on Business Property Mortgages?
Most commercial mortgages can run from as little as three, and for as much as 40 years. The longer the term, the lower the monthly repayments, but the more you are likely to pay overall.
The Revolution Brokers team can help you understand a cost comparison based on different mortgage terms to balance out overall costs against short-term cash flow pressures.
How Easy is it to Compare Commercial Mortgage Quotes?
It can be challenging to directly compare commercial mortgages since the fees, structure and terms will vary significantly between lenders.
You should always consult a professional broker before making multiple applications for comparison since these can involve hard credit searches which impact your credit score and can make applying for competitive lending more difficult.
Is a Business Mortgage Calculator Worth Using?
Mortgage calculators are useful, but very few provide quantifiable information about commercial mortgages since these are quoted bespoke to every business.
To get an idea about how much you can borrow, and what your monthly payments would be, give us a ring on 0330 304 3040.
Will I Get Better Business Mortgage Rates on a Smaller Loan?
Not really, no - commercial mortgages are offered on a case-by-case basis, so it won't make a huge difference whether you are applying for a larger or smaller amount.
If you have a lower LTV, your rates will be more competitive since the risk factor is lower.
Do Commercial Mortgage Rates Change Throughout the UK?
The bespoke nature of commercial lending means that your interest rates will depend heavily on your circumstances, the type of investment, and which lender you apply to.
Scottish Commercial Mortgages
You can find that some commercial lenders will not offer mortgages in the Highlands, away from the mainland, or some restricted postcode areas.
Northern Ireland Business Mortgages
With fewer commercial lenders to choose from, it is vital to use an experienced broker to negotiate terms on a business mortgage for a property in Northern Ireland.
Professional Advice with Commercial Mortgage Rate Negotiations
For further advice, and tailored recommendations about how and where to secure the most competitive rates on your commercial mortgage, contact the Revolution Brokers team.
As experts in UK business lending, we scour the whole of the market to offer the most attractive deals and appealing terms to our clients. Call us on 0330 304 3040 or email at email@example.com.