The impact of the pandemic on businesses is unprecedented. As the economy begins the recovery process, we've seen an uplift in enquiries from people looking to invest in commercial premises. Commercial mortgage broker, Robin Tait, answers some of your frequently asked questions about commercial property investment.
As we pass one year since Government restrictions were first introduced, there are signs of recovery. The UK vaccine roll-out is in full swing, our children are back in school, and the re-opening of non-essential retail is fast approaching. Progress is low and cautious, but it's there.
After what felt like the longest winter, spring's arrival has given many a new lease of life. Still, the recovery of the economy has a long way to go. The combination of COVID and Brexit has seen a 9.9% decrease in GDP (Gross Domestic Product), more than twice what we saw back in 2009 after the financial crash. Of course, recovery is only possible if businesses are open, and while many of us can work from home, many need commercial premises to function, let alone thrive.
Commercial property investment tends to be one of three options:
- Commercial Investment Property – a unit occupied by a third-party business that pays you (the landlord) rent.
- Semi-Commercial Investment Property – also referred to as 'mixed-use', this is a commercial unit with one or more residential properties attached. A typical example would be a hairdresser with two flats above.
- Commercial Owner-Occupier – you own the commercial unit from which you run your
Commercial Property Investment FAQs
What is the maximum loan to value (LTV) available on a commercial mortgage?
The answer to this is often dependent on the nature of the property and the demand for it. Whilst some lenders advertise up to 75% LTV, this isn't necessarily available to everyone. If you're an experienced landlord with a premier tenant with a 15-year lease, then 75% LTV on a commercial investment mortgage would likely be available to you. In reality, 65% LTV is a much more achievable threshold for most commercial property investors, with any additional borrowing a bonus. Do remember that lenders will not accept a Government Bounce Back Loan as a deposit source.
What type of businesses will commercial mortgage lenders accept?
Currently, lenders are understandably more comfortable with businesses that COVID and lockdowns have minimally impacted. Think to yourself, can this business still trade at full capacity with social distancing measures in place? How has it operated over the last twelve months? Has your tenant still been able to pay rent? If the answer to these is 'no', then I'm afraid you will find it very difficult to secure commercial mortgage finance at the moment, and possibly for some time.
What is the minimum lease time accepted by commercial mortgage lenders?
The majority of commercial mortgage lenders require at least two years remaining on the lease at the point of application. If it's less than this, you'll need to renew the lease before applying for a commercial mortgage.
I have seen an empty commercial property I'd like to purchase as an investment; can I fund this?
Commercial mortgage lenders ideally want a rent-paying tenant in situ when you buy a commercial investment property. Of course, there are more vacant commercial units available now, so if you can evidence high levels of disposable income and the valuer is confident the property will attract a good level of tenant demand, we can potentially obtain mortgage finance.
Can I buy a commercial property and start a business?
Commercial mortgage lenders tend to view true start-up businesses with no financial accounts as too high a risk to offer finance to. If you are buying an established business and have a CV that demonstrates you know how to run it, we can probably help you as this will be considered less of a risk. Typically, lenders will want proof of at least two years of profitable trading history to consider an application.
I'd like to convert empty commercial property into residential property, can I get finance for this?
Subject to planning and necessary consents, we can consider this. Typically, you'll need a 50-60% deposit of the property's purchase price, and then we can look at securing funds for the conversion costs separately. The success of this type of application also depends on your experience; if you've never refurbished a property of this scale before, lenders will be cautious. If you know what you're doing, or can evidence you have support from an experienced team, then you're more likely to be able to secure the finance.
Will commercial lenders lend to first-time buyers and/or first-time commercial landlords?
The majority of commercial lenders require some landlord experience, whether commercial or buy to let, in order to consider a mortgage application. Owning your own home is also usually a minimum requirement. Being a commercial landlord is more complex than being a buy to let landlord, so there are stricter requirements in place.
Hopefully, this has helped answer some questions about investing in commercial property. If you have any other queries or would like to discuss a possible application, do not hesitate to contact me, Robin Tait, on 01625 416391 or email me firstname.lastname@example.org, and I'll be happy to help.