I Want To Get Into Property Investment But...

Here are the most frequently asked questions regarding commercial mortgages in a recent poll of potential property investors.

Should I Take Out a Commercial Mortgage? That depends how much emphasis you place on wanting stability and security, a commercial mortgage gives you complete control of your work premises as you own them through your company. No matter if it's a factory or office, most property appreciates in value, so your business will benefit from this and could benefit from a capital gain if you ever decide to sell the property.

In addition, financing premises with a commercial mortgage fixes your business costs. Unlike rents, which can be volatile and change regularly, a commercial mortgage gives you a repayment schedule that sets out what you have to pay every month. And, a business loan may actually be cheaper than rent. A commercial mortgage is therefore more stable and will help you to make long term plans.

Owning your own building also gives you the scope to play the role of landlord yourself. It should be looked at if your current workspace is too large or you have enough room, sublet it to another company or partition the space into several spaces and gain several tenants. This could be a very effective way of covering your own commercial mortgage payments.

What Are The Main Advantages Of A Commercial Mortgage? As well as the ability to realise a capital gain and to sublet your premises there are several other main advantages of a commercial mortgage. Firstly, any payments you make to your commercial mortgage are usually tax deductible. This means that the payments you make can be deducted from your business profits as an allowable tax expense.

The second advantage commercial mortgages have is you'll be sitting on a strong piece of collateral and have a source of equity to use when you need to access it. This averts the need to sell a chunk of ownership in your company to raise capital at a future date.

Commercial mortgages are also more stable, allowing you to plan more accurately for the long term without the possibility of dramatic rent rises.

Who will Responsibility lie with in the Company for the Commercial Mortgage? This question all depends on the chain of command within your company, though it will always be with whoever is at the top of the pyramid. Partners in a business will be jointly responsible for any commercial mortgage, while a sole trader will have all the burden to deal with.

In a company structure with several directors, they will all be liable for the commercial mortgage and its repayments. Each will have to submit a personal director's guarantee, which are necessities with most lenders, in which the directors will assure the lender they will take responsibility for the commercial loan.

Over What Term Can I Borrow and How Much? The maximum term for almost all commercial mortgages is around 20 years, though for older buildings you might only be able to secure a 15 year term at best. Though rarer than they use to be, interest only mortgages are available, but they will almost certainly include the caveat that they revert to a capital mortgage after a certain number of years. This is partly to help get the business firmly up and running without overloading the business with a crushing overhead straight away.

You'll have more success acquiring a commercial mortgage the LTV (Loan to Value) rate is, the higher the deposit, the lower interest will be and approval is more likely. Deposits for commercial mortgages tend to be higher than for residential mortgages, minimum deposit will be 20% with the average reaching no higher than 30%. But like I already stated, the more you can deposit up front, the better for you and your business in the long term.


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