May 19, 2024


Mad about real estate

100{ef6a2958fe8e96bc49a2b3c1c7204a1bbdb5dac70ce68e07dc54113a68252ca4} LTV Commercial Mortgages, Myth or Reality?

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{ef6a2958fe8e96bc49a2b3c1c7204a1bbdb5dac70ce68e07dc54113a68252ca4} 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{ef6a2958fe8e96bc49a2b3c1c7204a1bbdb5dac70ce68e07dc54113a68252ca4} 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.

If you do own a second property that you can offer, such as another commercial property or a residential property, then instead of risking the entire property, a mortgage lender can raise small charge against part of the property. Always be careful when you are risking your own home as collateral for a loan however, the stakes can be very high.

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.

Tenant Purchase: Another way that you may be able to borrow a higher proportion of the purchase price of a commercial property us to buy it at a discount. For example, if you have leased premises for a long time, the landlord may decide to sell the property to you at a knock down price. Remember however that the valuation would have to confirm the market price.

Because you’ve managed to negotiate a discount a lender might be interested in lending to you a 100 per cent mortgage. Why? Well it’s simple banking calculations. Assuming it’s an attractive property worth £150,000 and you’ve picked it up for £120,000, the bank can risk its 100 per cent mortgage knowing it’s sitting on at least £30,000 of market equity. If you default the property will still turn a profit at auction.

Value Added: This is an approach favoured by seasoned property developers. In this strategy, when a property has the potential for greater market value after a renovation, bankers will be more willing to lend more and expect a smaller deposit. Sometimes if you are extending an existing commercial property or redesigning a site they will be also inclined to offer more cooperative rates.

To undertake large scale renovations, you would need to be certain that the improvements would command a higher level of rental income from any potential tenants. You should research the market carefully in order to ensure you’ll maximise your rental return. If it is feasible then you may be able to borrow the money you need on a commercial development loan which could later be repaid by a high LTV commercial mortgage.

As you can no doubt see, there are numerous ways you can bend the system to obtain a 100{ef6a2958fe8e96bc49a2b3c1c7204a1bbdb5dac70ce68e07dc54113a68252ca4} commercial mortgage. It might take time and a lot of patience of perseverance at first, but you will eventually find a commercial mortgage that you are looking for.