Before considering purchasing a commercial property it is vital to understand that there are some very biog differences between commercial mortgages and residential mortgages. Perhaps the most important factors to take into consideration are :-
Length of commercial mortgages
Most residential mortgages are typically repayable over a 25 year period whereas with commercial mortgages the repayment period is typically shorter at 10-20 years.
Amount of loan to value
Commonly, commercial mortgages require a higher level of doenpayment by the borrower, or put another way, a lower loan to value. It is not unusual for lenders on commercial mortgages to require between a 20-30% doenpayment by the borrower.
Differing paperwork requirements
Paperwork required for a commercial mortgage tends to be more comprehensive than for a residential mortgage. It can also include ancilary documents pertaining to any parts of a building being purchased which are already let, and may also include various company law documents if the borrower is a corporate entity.
Typical requirements may include :-
- Audited accounts
- Current performance indication
- Bank statements of the business over the period of the last six months
- A detailed business plan
Fees not necessarily associated with a residential mortgage application
May include :-
- Administration Charge
- Mortgage arrangement fee – can be between 0.5-1.5 per cent of loan
- Lender’s solicitors fees – it is not as common for lenders on commercial mortgages to allow the same solicitors to advise both them and the borrower. the lender may insist on using it’s own solicitors, at the borrower’s cost
- Early Repayment Charges - these can apply to residential mortgages but are particularly common ion commercial mortgages and the implications should be carefully considered.
- Full Structural Survey fee – with residential mortgages the requirement is typically for the borower to pay a valuation fee only, which is considerably cheaper than a full structural survey cost.
In summary, it is always important to take specialist commercial property legal advice before incurring the fees detailed above, some of which are payable on a non-refundable basis at an early stage of a transaction.
