The UK commercial mortgage market may not be thriving but there are still commercial properties being sold and re-mortgaged every month.
The commercial mortgage sector is being helped by low interest rates and attractive rental yields across a very broad spectrum of property types. Buy to let commercial mortgages are being used to purchase and re-mortgage a variety of properties, for example:
- Semi-Commercial property (flats above fast food outlets)
- Retail Units
If the property is being purchased or re-mortgaged for investment purposes then one of the most important factors when assessing the application will be the strength of the rental market locally. This is a major consideration because it is the rental income which will dictate the size of the commercial mortgage.
The difference between commercial and residential investment property
Unlike the residential market where calculating the rental incomes for a property is very straightforward, calculating the potential rental income for a commercial or semi-commercial buy to let property is much more complicated. This is because of the vast array of different types of commercial property, for example a the potential income for a retail unit on a high street will normally be much easier to work out than a one-of-a-kind warehouse on an industrial estate.
When a lender considers an application for a buy to let commercial mortgage they will obviously consider the credit history of the applicant, but also the rental income for the property and additionally another consideration is the demand for the subject property. This is because commercial leases are different to residential ones.
Broadly speaking there are two distinct types of commercial buy to let mortgage available for commercial and semi-commercial properties, these are the full status products typically available from banks and some building societies alternatively there are specialist lenders offering self-cert commercial mortgages, however these will be substantially more expensive.
Buy to let commercial mortgage rates
The first choice for commercial mortgages to assist with the purchase of a buy to let commercial property would be one of the mainstream banks. The best mortgage products will usually be limited to a quite conservative Loan to Values (LTV’s), normally 75% would be the maximum loan but the interest rates can be very low. For example, at the time of writing one of the building societies will offer a commercial investment mortgage at 0.9% over bank base rate.
Self-cert buy to let mortgages are more expensive, however they do offer a great degree of flexibility. LTV’s for a self-cert mortgage can be as high as 85% but the rates can easily creep into double figures. Whilst the self-cert buy to let commercial mortgage can seem attractive because of the higher LTV’s the other consideration is the set-up costs, where a bank may charge 0.5% to set up a mortgage the self-cert mortgage can charge up to 2% and carry significant redemption penalties.