Five Commercial Mortgage Expenses To Watch Out For...

Taking out a commercial mortgage is a big step for many companies. Whilst owning your own business premises can offer many benefits to your company, borrowing to fund the purchase or premises can eat up a lot of the capital you have in your business.

Buying commercial property requires careful consideration of the various costs involved. Not only will you have to put down a significant deposit (typically between 25 and 50 per cent of the purchase price) but you will also have to budget for the other charges involved in a property purchase. Our guide highlights five of the most common charges and fees that you will encounter when you are buying commercial premises for your business.

Arrangement or Booking Fees: As with a residential mortgage, you will generally pay an arrangement or booking fee for your commercial mortgage. These fees typically range from 0.5 to 1.5 per cent of the commercial mortgage amount. Some lenders will allow you to add the fee to the loan whilst others will require it up front. Often, you will find that the exact fee you pay will be determined by a process of negotiation and the eventual structure and interest rate of the commercial mortgage.

Valuation Costs: When you enter into a commercial mortgage, the property will have to be valued for the lender in order that they can confirm that the commercial property is valued at a high enough value to be adequate security for the commercial mortgage. This valuation will usually mean that you have to pay a fee for the valuation to be done, and although this is sometimes paid by the lender, that is not always the case.

Don't discount the need for a thorough structural survey by a conveyor, wither you or the lender could demand this to ease any fears of what the valuation brought up, especially if it is an older building. Obviously this will send the costs of the valuation fee skywards and to be 110% sure you might need/want to get two surveys conducted by separate conveyors.

Legal and Professional Fees: Buying a commercial property will also involve legal and professional fees. A solicitor will have to be employed to draw up a contract and to gather together all the relevant legal documents that are needed for a property to be bought. Other professional fees need to be taken into consideration such as those for insurance and for site surveying.

Costs For Redeeming Your Mortgage Early: If you repay your commercial mortgage early you may have to pay fees to exit the loan. Even changing to a new mortgage product can be classed as exiting the loan, as the commercial mortgage would be repaid in such an instance and so you need to remember this if you want to change lenders. The fees also apply if you sell the property within the early repayment period.

Fees for Mortgage Advice: If you use a mortgage adviser to research the market and broke your commercial mortgage then you may incur fees for their services. Depending on your adviser, you may be able to agree for the fees to be paid to them direct from the lender by way of commission. The fees charged really do depend on the adviser so you would need to have a discussion about their remuneration.

Again, it is worth checking with your broker whether they expect payment from you upon completion in a lump sum or they might take a commission fee directly from the lender. The fees can range because of a variety of factors, so this is something you will need to discuss to get a ballpark figure, though you can expect the fee to be anywhere from £300 to 1% of the mortgage borrowed, a very broad spectrum I think you'll agree.

When you are working out the cost effectiveness of your development plan, and the relative cost of purchasing property, don't leave additional costs off the balance sheet. It is tempting to make a deal look better than it actually is by leaving certain costs to one side. This is a false economy and won't help you to fully judge whether a commercial purchase is right for you.


------

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