If you think obtaining a residential mortgage is as tough as it's ever been, then try cobbling a deal together for a commercial mortgage! While 80-90% Loan to Value (LTV) deals are very slowly trickling back into the residential mortgage market, the standard deal you could expect for a commercial mortgage in the boom years would have been a 75% LTV.
There may be ways, however, of finding a higher percentage and placing a lower deposit on a commercial property. This article will explore the various ways that this can be achieved. As it is becoming increasingly difficult to raise a 25 per cent deposit (a property of £200,000 will mean you have to put together a cool fifty grand), lenders are having to find new ways of doing business with prospective borrowers.
Offer Additional Security: As with residential mortgages, the property you are buying is usually the only security for the mortgage loan, meaning the lender is taking most if not all of the risk. So allay that fear by offering extra assets as security to the lender, share the responsibility.
Lower the Risk: By offering additional security, the lender may be happier to increase the loan to value. Normally, you will only be using the actually building itself as security for the loan, however adding additional security can lower the risk to the lender of your commercial mortgage making it a more favourable deal for them.
If you have any other buildings, then you may be able to allow the lender to put a charge on this property as extra security for your loan. You may also be able to use other business assets as security, but this is something that would need to be discussed with individual lenders. If you want to take this route it may be wise to employ a mortgage adviser to assist you.
From Tenant to Landlord: If you are currently a long term tenant within a commercial property that has been placed on the market you may have the option of buying the property yourself. Depending on the lender and the valuation, you could expect to gain the freehold for the property at a discounted rate.
If you do qualify for a discounted freehold, then the commercial lender will be much more receptive to a higher LTV than 75%. If the property is in a desirable or in demand area you can expect the lender to be even more willing to increase the LTV as the potential for the valuation to increase and the sale period to be low means less risk for the lender.
Value Added: If there is the possibility that you can reconfigure the site, or extend or renovate the commercial property, a lender may consider a higher mortgage. This is true if you plan to add value to the property through the improvements and that these renovations will attract a higher class of tenant.
This option is going to require some in depth research, you don't want to be making renovations or building extensions that cost more than the value they will add. When you can prove that all the works you are planning can add value and enable you to charge higher rents to tenants, you can gain funding from a commercial development loan. This has the advantage of being tacked on to you commercial mortgage, so in essence you would likely end up with a 100% commercial mortgage in the end.
So, if you are looking to borrow 100% or thereabouts on a commercial mortgage, it may still be possible. If you use the hints and tips we have outlined above then it may very well be possible for you to secure the borrowing you need.