The thing with commercial mortgage rates and what factors affect them is that lenders don’t have an easy reference of go-to rates. There isn’t a standard offering to businesses based on known Loan to Values (LTV) or with a pre-determined set of risk factors for each applicant. Commercial mortgage rates are almost always offered (and reviewed) on an individual applicant’s unique circumstances and based on the type of property (and its condition) that is being offered as security…
If you are looking to raise finance for your business, being able to provide a good-sized deposit (in excess of 30%) for the premises you are seeking to purchase (or refinance) will attract the best deals. Strong security is critical in capturing the best rates, but there are several other factors that will dictate what rate you will actually be offered.
Why commercial mortgage rates are important
As with any loan, funding is only useful if the rate of interest on it is affordable and beneficial to the business requesting it. If rates are too high then the funding could be too expensive and unviable. Even taking into account the benefit of freeing up capital, if the funding doesn’t allow the business to expand or create investment opportunities then a commercial mortgage won’t make sense. The rate of lending is critical to affordability.
What rates do I qualify for?
The rates you are being charged for commercial mortgages and business loans are not always the same predetermined ones you can enjoy when applying for a personal loan. A lot of information has to be considered and your level of risk will need to be thoroughly assessed before the commercial mortgage lender will pass your application for a loan.
This is the same for each and every application. Principally because each borrower and property has a different set of attributable risks linked to them.
Obviously, loans with an assumed low risk will enjoy some of the better rates available. Conversely, loans which are seen to be high risk can find themselves having surprisingly high rates attached to them.
Types of commercial mortgage rate
Fixed Rate vs Variable Rate – Fixed rates are set for a period of time before either reverting to the variable rate or re-negotiated whereas variable rates change depending on the Bank of England base rate.
4 factors affecting commercial mortgage rates
The key factors that affect your offered rate take into account of your past performance in business and as a borrower along with what current plans or projections you have. The lender will be looking for satisfaction so that you can make the repayments satisfactorily before offering you a commercial mortgage rate. It is not simply enough to have a large deposit to purchase a property. No lender actually wants to have to repossess the asset so the need to demonstrate an ability to make the monthly repayments is crucial – this is called ‘Serviceability’.
- Risk – How long has the business been running? Is it successful? Are the directors willing to personally guarantee?
- Loan to Value – To get the best rates the LTV must be lower, so putting up more deposit means offering more security, presenting a lower risk to the lender and hence a more favourable rate.
- Credit Rating – How good is your credit rating? The lender will look through many years of accounts to see how viable your business has been, how viable your business is now and what your future projection looks like.
- Loan Amount – The amount you want to borrow will also be reflected in your rate. Borrowing £2,000,000 will incur a lower interest rate than borrowing £50,000.
To learn more about what kind of commercial mortgage rates you could access call us today on 03330 069 141 or request a callback via the contact form.
