Mortgages for Commercial Buildings
As with a residential mortgage, the commercial lender will hold the title deeds to the property as security. In the event of arrears the mortgage lender can repossess the commercial property.
A business owner who wants to fund his/her premises may use an ‘owner occupied’ Commercial Mortgage.
A Buy to Let commercial mortgage allows a landlord to purchase a commercial property solely for investment purposes and rely on the rental income to cover the mortgage and provide a profit.
Buying Commercial Premises – Advantages & Disadvantages
Buying commercial premises can be a good investment but before you commit, it is important to consider carefully the pros and cons. The acquisition of a property adds stability to your business and the property itself can become a significant asset, the upsides and the downsides to buying are shown right:
ADVANTAGES:
- A fixed rate mortgage means you will have predictable monthly repayments
- The repayments are likely to be similar to a rental payment on the same property
- You are protected from any sudden rent increases
- Interest payments on the commercial mortgage are tax-deductible
- Possibility to sub-let any free space, reducing your monthly repayments (lenders permission may be required)
- Potential gain in value of the property
DISADVANTAGES:
- Substantial deposit is required – would this money be better allocated to more important business purposes?
- Selling business premises can be difficult. What if you want to re-locate?
- If you have a variable rate mortgage, you are exposed to increases in interest rates.
- Ownership means you’ll be responsible for ongoing costs such as security, maintenance repairs, fixtures & fittings and insurance.
- Potential reduction in value of the property