Your IndustryJan 16 2014

Variety of commercial mortgages

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A commercial mortgage works in a similar way to a residential mortgage, except the property the loan is secured against is used for business purposes.

Commercial mortgages might be used because the business itself is trading from the property or the property is being held for investment reasons. The lender holds the legal rights over the business property until the loan is fully repaid.

A commercial mortgage could apply to a warehouse or factory, retail premises, offices, or a residential investment property which includes houses, blocks of flats or Houses in Multiple Occupation (HMOs).

Commercial mortgages can also be raised to help the financing of new build properties, often called residential property development loans.

Types of mortgage will vary depending on the lender you approach, according to Rob Lankey, managing director of commercial mortgages at Aldermore Bank.

However he said in broad terms, these will include commercial owner-occupied, and commercial investment and residential investment.

Steve Olejnik, sales director of Sevenoaks-based intermediary Mortgages for Business, says commercial mortgages can be split into two main categories:

1) Owner-occupied

Commercial mortgages can be provided to trading businesses looking to raise finance for new or existing business premises.

Security is usually provided by way of a first legal charge over the business premises and personal guarantees from the proprietors, according to Mr Olejnik. Bricks and mortar security is often preferred by the lender although some will also take into account the value of the trading business if appropriate, he adds.

Mr Olejnik says: “Most types of commercial property provide suitable security for lenders - offices, industrial units, hotels, pubs, restaurants, retail units, care homes, mixed freeholds, for example, commercial units with flats above.”

2) Investment

Commercial mortgages are also available for property investors looking to invest in commercial and complex residential properties.

Finance can be provided for a number of scenarios including:

A) Prime commercial investments, for example, bank premises where the bank leases the premises on say, a 25-year lease.

B) Leisure properties - hotels, pubs, restaurants, etc, where the business owners rent their premises.

C) Retail units, offices, industrial units where the tenant is on a short lease - typically five to 10 years.

D) Mixed investment properties - typically retail units with flats above.

E) Complex residential investment properties such as houses in multiple occupation (HMOs), freeholds consisting of several self-contained flats, student blocks, etc.