Getting a mortgage for an investment propertyPublished on 11th July 2018 2018-07-11T23:53:14+00:00 - Last update on 8th January 2019 2019-01-08T14:41:30+00:00
Overwhelmed by the cost property in the UK? You’re not alone. Whether you’re looking to purchase your first permanent premises, expand the size of your existing portfolio or redevelop, finding the necessary capital to carry out your goals isn’t for the faint-hearted. However, rather than drawing on your own savings, a tool that many like-minded business owners use is a Commercial Mortgage. Enabling you to spread out the cost of property or redevelopment projects, Commercial Mortgages could provide you with the funds you need to drive investment. But, how do you get a Commercial Mortgage for your business?
Will lenders check my creditworthiness?
Yes. Before any lender will offer you a Commercial Mortgage agreement they’ll request permission to review both your personal and business credit profile. This is in order to ascertain your credit score, which will be used to calculate how much interest you’ll be charged throughout the agreement. Therefore, if you possess a weak credit score lenders will interpret this as your business having a higher risk of defaulting, charging you more interest as a result. As such, lenders will incorporate into their checks whether you have past or recent CCJs, outstanding debt (e.g. credit card debt), accelerated payment notices (APNs) or whether you possess a reliable history of resolving debt on time.
How are Commercial Mortgages secured?
Commercial Mortgages are traditionally secured long-term agreements that use unencumbered property (commercial or residential) as collateral. But how this works depends on the purpose of the agreement. If you’re looking to support a purchase, then security will be set using the property you’re hoping to acquire. If you’re thinking about redeveloping a property in your portfolio, security will be set using either the property concerned or another property in your possession. However, what you need to be aware of is that because the agreement is secured, lenders can repossess the property if you default or fall behind in the fixed monthly repayment scheme.
How much equity will I need to place?
In addition, you will need to place a portion of your own funds in the agreement, boosting lender confidence. Subject to negotiation, this usually starts at around 20%. However, offering anything up to 40% of the property’s value could enable you to gain more favourable terms with a lower interest rate. Plus, this also reduces the amount of capital you’ll need to borrow, saving you more money in the long-run.
What documents will I need to provide?
Finally, you’ll also need to provide a number of documents to allow the lender to form a more in-depth understanding of your business’ financial situation. As such, you may be asked to submit business plans, recent and past bank statements, profit and loss statement, audited trading accounts, collateral documentation, asset and liability statements, growth forecasts and credit reports. Before applying, you should aim to get these prepared beforehand. This will help make the application process much smoother and may enable you to gain access to the funds sooner.
Thinking of applying for a Commercial Mortgage?
Although property is a vital asset for any business in the UK, the total cost requirement can be difficult to take on, especially if you’re a developing SME. However, rather than using your own savings, risking your business’ financial integrity, there is another way. Commercial Mortgages are a great way of supporting the cost of investment property, allowing you to spread the expense over an agreed term, which could last up to 20 years. But how can you source a competitive agreement from a lender you can trust? Simple.
At Rangewell, we’re an Access to Finance specialist working with over 300 lenders to offer you an overview of more than 23,000 business finance products. Our services are free to use and we’ll also guide through the application process. We’re with you every step of the way. So apply for a Commercial Mortgage today or find out more with Rangewell.
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