What is a Commercial Mortgage, how do they differ from Residential?

At Lines Henry, as well as being licensed insolvency practitioners, we’re also able to help arrange both a commercial mortgage and re-mortgages. But, what do you need to know about these and how do these differ from regular residential mortgages?

Just like individuals, it’s rare to find property bought outright, so commercial mortgages are the means by which business borrow the funds to purchase property.

Outside the information economy, most businesses need a premises of one sort or another and while many rent or lease them, others choose to buy commercial property. This could be for the business to use themselves, or simply to rent out to other businesses. Landlords looking to arrange finance on residential property they are, or are intending to rent out would also arrange commercial mortgages rather than residential mortgages.

How Are Commercial Mortgages Different?

For the most part, commercial mortgages work on similar principles to residential mortgages. They provide a means to borrow more money and over a longer term than would be possible with other loan types and are linked to the value of the property they’re used to buy.

First and foremost, one of the main differences is that of regulation. Residential mortgages are heavily regulated in order to protect consumers, but with commercial mortgages, this is not the case, so it’s important for businesses to make sure they do their due diligence as there’s far less of a safety net.

Another major difference is the size of the numbers involved in a commercial mortgage. Commercial mortgages will often be far larger than for even the grandest residential property and because these properties are being bought to house the buyers own business, or to rent out to someone else, lenders usually charge more interest than they would for residential property.

Unlike residential mortgages, commercial mortgages are bespoke financial packages, so it’s up to the business looking to take one out to find and negotiate the best deal, rather than being able to compare as is possible with home owner mortgages.

Because commercial mortgages are regarded as being more risky, mortgage providers will usually lend far less as a percentage of the property’s value than they would for residential property. With 70% loan to value being around the maximum many are willing to lend on commercial mortgages as opposed to 90% or sometimes even more being common in the residential sphere.

Finally, the timescales are often different too. While a residential mortgage typically lasts between 25 to 30 years, commercial mortgages tend to be much shorter, around 10 to 15 years is typical.

Get Help with your next Commercial Mortgage

While some businesses will be well accustomed to navigating the market to find and arrange commercial mortgages at the best rates, for most businesses, it’s something they’ll need to do only once in a while, perhaps no more than once.

At Lines Henry, we’re well accustomed to the commercial mortgage marketplace and have decades of experience helping business owners find the very best and most suitable commercial mortgages to meet their needs.

If you’d like to find out more about how we can help you and your business find and apply for a commercial mortgage that meets your needs, contact us to arrange a free consultation and let us use our experience to take the stress out of the process.