100% LTV Commercial Mortgages, Myth or Reality?

At first glance commercial mortgages and residential home loans appear to be similar, however there are some fundamental differences between the two, normally when the issue of 'loan to value' is raised. Loan to value ratios are an indicator of the levels of risk the bank or lender is willing to undertake when lending on a commercial enterprise. Typically they will lend only 75 per cent of the total value of the commercial mortgage and the borrower will have to produce a 25 per cent deposit.

There may be ways, however, of finding a higher percentage and placing a lower deposit on a commercial property. This article will explore the various ways that this can be achieved. As it is becoming increasingly difficult to raise a 25 per cent deposit (a property of £200,000 will mean you have to put together a cool fifty grand), lenders are having to find new ways of doing business with prospective borrowers.

Additional Security : With lenders feeling insecure about lending, it makes sense to offer them additional security if you can't offer a larger deposit. Since the start of the recession in 2008 lending has been drastically scaled back and banks are only willing to lend to businesses they consider are safe bets. Normally the property itself will be security enough for the banks, but in order to give them a greater inducement to invest further security, such as a second property might also be considered.

However, you could offer the lender the additional security of another property. For example, if you own other commercial properties or a residential property, the commercial lender could place a legal charge against one of these other assets in order that they benefit from additional security for the lending.

Lengthen the Mortgage Term: A simple one to explain, the longer the time period to pay back the mortgage, the lower the monthly payments will be. But expect to pay thousands more in interest payments as it takes longer to pay off the capital. This is why lenders would be more willing to up the LTV threshold as they benefit from thousands of pounds extra in interest payments.

From Tenant to Landlord: If you are currently a long term tenant within a commercial property that has been placed on the market you may have the option of buying the property yourself. Depending on the lender and the valuation, you could expect to gain the freehold for the property at a discounted rate.

If you do qualify for a discounted freehold, then the commercial lender will be much more receptive to a higher LTV than 75%. If the property is in a desirable or in demand area you can expect the lender to be even more willing to increase the LTV as the potential for the valuation to increase and the sale period to be low means less risk for the lender.

Value Added: This is an approach favoured by seasoned property developers. In this strategy, when a property has the potential for greater market value after a renovation, bankers will be more willing to lend more and expect a smaller deposit. Sometimes if you are extending an existing commercial property or redesigning a site they will be also inclined to offer more cooperative rates.

You would need to ensure however that the cost of adapting the property to add value will be covered by the increased rents that you would receive - you'll need to do some research in order to assess this, and make sure that you speak with a property valuer to assess the anticipated works.

As you can no doubt see, there are numerous ways you can bend the system to obtain a 100% commercial mortgage. It might take time and a lot of patience of perseverance at first, but you will eventually find a commercial mortgage that you are looking for.


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Timothy Frodsham writes for Just Commercial Mortgages the UK's No.1 site for the latest commercial mortgage rates and commercial property finance news.