How to Refinance Commercial Property in the UK

Commercial property can be a sound investment in the UK, but the initial terms you agree to don’t have to remain binding throughout your business journey. As you grow, refinancing (also called remortgaging) allows you to switch loan products to change your repayment structure. 

In this guide, we’ll explain how refinancing works in the context of commercial property – which is often also referred to as remortgaging. However, it’s important to remember that refinancing is a broader idea that doesn’t just apply to mortgages. If you’ve taken out other forms of business finance to fund property purchases, you can still refinance and often doing so means switching from a more general bridging finance product to a commercial mortgage. 

Here at Rangewell, we act as financial experts on our client’s behalf, taking your requirements into account before approaching lenders who will offer refinancing agreements to help you grow your business. Our role is as your advisor and broker, negotiating on your behalf at no cost to you so that you can benefit from the best deal for your business.

Often, the initial terms of a refinancing agreement may seem appealing, but you have to consider all of the ways it may affect your business. If, for example, you are offered a new fixed-rate commercial mortgage, the actual repayments may hinder cash flow and limit your ability to grow. In cases like that, having Rangewell on your side to show the long-term value of a new loan and arrange a superior offer with the lender is invaluable. 

Contact us today if you’d like to refinance commercial property, or read on to find out exactly how and why refinancing can work for you. 

Refinancing a commercial mortgage

Like a standard homeowner mortgage, commercial mortgages carry specific rates and term agreements that dictate how much cash you have to repay each month and for how long. As your business or circumstances change, however, these repayments may become restrictive or impede your business’s growth. 

Refinancing, or remortgaging, allows you to switch agreements with either your existing lender or a new one, giving you more options with how you repay your loan. Unlike other lending arrangements where the lender must scrutinise every aspect of your business to determine risk, mortgages are usually more stable due to the value of the property in question and the security it offers.

A commercial mortgage lender will assess the property’s ‘rateable value’, any lease arrangements, insurances you have in place, energy performance and the registered use class in effect on the building. If your property is currently leased out, the lender will want to see a copy of the lease. 

To refinance, you need to approach either a new lender or your existing one and ask about switching. This is often done at the end of any pre-agreed fixed rate term (often two years) before you are switched to a more volatile variable rate. However, you can technically refinance at any point during your loan, provided there are no contractual factors that prevent it.  

When refinancing, any new loan will be offered based on the property’s value at the time of application – which is why it’s so important to refinance at the right time. The ‘right’ time will vary, of course, but is usually whenever your property has risen in market value or you’ve done enough construction or conversion work to add to its value. 

You would then approach lenders from a stronger position with a property worth more than it was when you took the initial mortgage out, which means you’ll be able to raise more money or negotiate a better rate. 

Why refinance commercial mortgages? 

The main reason you ever choose to refinance is to save money, but some distinct situations make refinancing particularly useful. These are: 

Switching to a new lender

If your existing lender can’t offer different rates or you’ve had a disagreement with them that has left you dissatisfied, refinancing allows you to engage with a new lender that may be more suited to your business. 

This isn’t even about the financial aspect of the deal – though many new lenders can offer better rates than your current lender, the real value can be in starting a new arrangement with a more supportive lender who can help your business grow and even offer other forms of finance or help fund future property conversions. 

Changing loan type

Between buy-to-let mortgages, commercial mortgages, owner-occupier and other commercial loan agreements, you may want to switch to a different type of loan if the nature of your usage has changed. For example, if your current office was under a commercial mortgage agreement and you decide to live in it as an owner-occupier, you can switch to a different loan more suited to your new usage. 

Switching from variable to fixed rates

Commercial mortgages tend to have a fixed rate period that is then replaced by a variable rate. In times of economic turbulence, interest rates can surge and cause your repayments to skyrocket – so many property owners choose to refinance to a new fixed rate agreement before they have to default to the variable rate. 

Avoiding balloon payments

Some lenders have balloon payments written into their commercial mortgage terms. These are typically high sums of money that have to be repaid at the end of the repayment term. If you’re approaching the end of your mortgage and want to skip the payment, refinancing to a longer term loan helps avoid them. 

Taking advantage of increased value

When a property increases in value, you can refinance to try and borrow against the increased value – meaning better rates and often even greater loan amounts. Similarly, if you want to raise more money for your business, you can refinance to release some of the equity you’ve built up and use that to fund growth. 

Consolidating debt as a portfolio landlord

If you’ve got several commercial mortgages across multiple properties, repayments can be hard to manage. Some lenders will offer debt consolidation, allowing you to have a single repayment that covers each property. The terms and rates will be based on the value of the portfolio as a whole and repayment schedules will be much easier to adhere to. 

Can I borrow more money against my commercial property? 

Yes. You can borrow more money against your commercial property, depending on how much equity you have. Any new agreement will also factor in the increased value of the property and can therefore offer a sizeable cash injection if you’ve added value to the property. 

Refinancing property under a buy-to-let mortgage

Buy-to-let mortgages are popular in the UK for good reason; they help support landlords to launch or build property portfolios. Remortgaging your buy-to-let is an option worth exploring at different stages of your growth but is most commonly done at the end of your fixed term or tracker period. 

Rather than being automatically transferred to your lender’s default rates, you can negotiate a refinancing agreement that switches you into a new mortgage and avoids the default. If your properties have grown in value or you’ve built up equity, you may also remortgage to release equity that can be used to fund the purchase of more property. 

Most buy-to-let mortgages have a limitation built into their agreement that prevents you from remortgaging until at least six months have passed. You’ll need to look at your agreement to ascertain which limits are in place before you proceed. It can take around a month for any agreed refinancing agreement to come into effect, so you’ll need to plan for this in your cash flow projections. 

Read more: buy-to-let remortgaging

There’s a lot more to know about buy-to-let remortgaging, so click here to read our comprehensive buy-to-let mortgage guide. 

When is refinancing property a bad idea? 

Refinancing is rarely a good idea if your property hasn’t increased in value or the market is in trouble. To make any remortgaging agreement worthwhile, there needs to be a reason for a lender to agree to your requests – so unless you’re able to demonstrate more demand for property in the area, increased profitability or a higher overall valuation, you may struggle to receive a good offer. 

You should also consider the costs of refinancing. Depending on your existing mortgage you might have to pay an exit fee and also fees with the new lender, so ensure you know what these are and how repayment will affect your capital position before you commence with a refinancing agreement. 

Refinancing auction or investment property

If you invest in properties at auction, you will typically use a bridging loan to generate a short-term cash loan that allows you to buy the property. These loans usually come with very limited repayment terms and high rates that place a significant demand on your cash flow. 

Refinancing from a bridging loan to a longer-term loan allows you to spread the cost and to benefit from the property’s growth in value post-sale. In some cases, provided you carry out renovation/upgrade works to a high standard, you can expect to see surges in property value that you can leverage to refinance to a far superior loan with better rates and a longer term length. 

When you’ve bought a property at auction or you’re looking at one, get in touch with our team. We can help you with raising finance to fund the purchase, as well as refinancing afterwards into a more suitable long-term loan that supports your plan for the project. 

Read more: refinancing investment properties 

Unlike a typical commercial mortgage, where the owner intends to operate a business from the premises, some properties are bought with investment in mind. These investments may include buy-to-let mortgages, which we’ve already covered, or property auction/short-term loans used to raise funds quickly to capitalise on auctions and other investment opportunities

Like buy-to-let mortgages, investment property refinance is unique enough to warrant its own guide, which you can read here. 

Refinance with experts on your side

Rangewell helps commercial landlords across the country develop their portfolios and refinance whenever required to find the most suitable agreements that balance interest rates, loan term length and overall repayment amounts. 

We can work with you to identify which direction is right for you and help you understand the lenders market, submit your application and negotiate the best outcome. Don’t go it alone when you’re considering how to refinance a commercial property. Choose Rangewell to act as your expert advisor in commercial property refinancing.