The Beginners Guide to a Commercial Mortgage Broker
Are you fed up with paying high rent and looking to take out a mortgage on your commercial property? This one-stop beginners guide to a commercial mortgage broker is for you!
Realising your business goals can be challenging when you’re faced with steep rent every month, especially in the very beginning. Luckily, commercial mortgages are here to the rescue.
With the help of a proficient mortgage broker, you can finance the purchase of a commercial property for your business, which will then enable you to focus more on improvement and expansion.
In this article, we cover everything you need to know about commercial mortgage brokers, from their types and what they do to how you can choose the right mortgage broker. Let’s get down to brass tacks.
What Is a Commercial Mortgage?
Before we discuss the role of commercial mortgage brokers and the services they have to offer, we must first shed light on what a commercial mortgage is.
While traditional mortgages are intended for residential properties, commercial mortgages are intended for buying or refinancing commercial properties for business purposes.
Both types of mortgages work the same way in the sense that money is borrowed and secured against a given property, be it residential or commercial.
What’s more, commercial mortgages can be used for business expansion purposes as well as property development. They’re quite handy!
It’s worth pointing out that the market share of commercial mortgages is fairly small compared to that of residential mortgages. Nonetheless, the value of both market shares is remarkably high.
Commercial property mortgages are considered long-term loans that can span up to 25 years. They’re structured in such a way that both the borrower and the lender are benefitting from the whole affair.
On the one hand, the borrower is getting ownership over a commercial property and enjoying lower repayments compared to renting. On the other hand, the lender’s loan is adequately secured.
In most scenarios, the lender will provide up to 70% of the property’s value. The rest is on the borrower. Further, any growth is to be funded by the working capital.
Benefits of Taking Out a Commercial Mortgage
Besides the obvious, which is helping you find a forever home for your business and avoid increasing rental charges, there’s a lot that a commercial mortgage can do for you in the long term.
For starters, a commercial mortgage enables you to access and maintain equity as the value of your property increases. You also get to enjoy a released capital that you can use for expansion or investment.
Other benefits of taking out a commercial mortgage include the ability to buy new equipment, consolidate business debts, sub-let or lease certain parts of your commercial property, and expand your trading.
Did you know that you can take out a commercial mortgage on a property and then rent it out? What’s more, you can take out a commercial mortgage on a property just to unlock its equity.
As you can see, taking out a commercial mortgage is one of the most flexible ways to finance the purchase of a property. The main requirement is having tangible assets for security purposes.
What Is a Commercial Mortgage Broker?
Commercial mortgage brokers, also referred to as commercial mortgage advisors, are intermediaries that help customers finance their property purchases by matching them with the right mortgage lenders.
Commercial mortgage brokers typically have working relationships with prominent lenders as well as first-street credit unions and banks. Some may even have relationships with niche loan providers.
The broker is compensated for their efforts in the mortgage arrangement process by charging the borrower or the lender—sometimes both—a fee. The fee usually covers expert or specialist advice as well.
Successful mortgage brokers will have in-depth knowledge of all the ins and outs of the mortgage market, enabling them to pinpoint deals that are suitable for their clients.
Bear in mind that not all commercial brokers have firm ties with definite loan providers; some operate independently. Also, not all brokers operate in a face-to-face manner; some operate online. Lastly, note that all commercial brokers in the UK are regulated by the NACFB.
The Difference Between Residential and Commercial Brokers
The main difference between a residential and a commercial broker is that the latter only deals with transactions that revolve around commercial properties and business premises.
It’s worth noting that some brokers work with both commercial and residential clients. They’re often referred to as general brokers.
When it comes to commercial transactions, we recommend opting for a commercial broker over a general broker, seeing as the former will most likely have more extensive knowledge of the commercial sector.
Why You Should Use a Commercial Mortgage Broker
There are quite a few reasons why you should refer to a mortgage broker when trying to purchase a commercial property for your business. The most notable reason is the broker’s expertise and knowledge.
Successful mortgage brokers are able to pinpoint suitable mortgage deals for their clients, sparing them the hassle of looking up mortgage deals by themselves and helping them save money.
Referring to a commercial mortgage broker is especially important if you have special circumstances that may hinder your purchase.
For instance, if you have poor credit, it can be hard to find a loan provider. With the aid of a broker, however, you’ll be matched with a lender that specialises in poor-credit loans.
Another situation where referring to a mortgage broker can be quite helpful is if you’re self-employed, seeing as providing payslips to potential lenders as a means of proving your income wouldn’t be possible.
Note that different loan providers have different preferences and acceptance criteria. Instead of having your loan application denied several times due to bad credit, self-employment, or any other reason, refer to a mortgage broker; they’ll help you find the right lender for your specific situation.
Here’s another reason you should work with a mortgage broker: speed!
Getting a mortgage and buying a commercial property is by no means a five-finger exercise. It’s a process that takes a lot of time; time that you may not have. See, if the process of taking out a mortgage takes too long, your chances of losing out on the purchase increase.
No matter your expertise, a commercial mortgage broker will carry out the process a lot faster than you will since most brokers utilise advanced tools and software to pinpoint suitable deals that meet their clients’ circumstances.
Every single factor that plays a part in your property purchase will be taken into account when you’re working with a mortgage broker, from your income, employment, and credit reports to the loan amount and loan-to-value ratio.
What’s more, the mortgage broker will speak to the lender on your behalf and take care of all the paperwork.
Simply put, working with a mortgage broker eliminates the hassle that comes with purchasing a commercial property.
The Importance of Finding the Right Mortgage Broker
Just as with any profession, mortgage brokers vary in terms of expertise, knowledge, and overall competence. On that account, choosing the right mortgage broker can make or break a purchase.
You should opt for a broker that has not only in-depth knowledge of the mortgage industry, but that also has strong ties with various lenders, understands your individual circumstances, and has a good grip on your business needs.
Successful commercial mortgage brokers are the ones who operate with complete impartiality and who are familiar with numerous lenders from different niches. Such brokers are able to browse different mortgage deals and pick the ones that suit their clients the best.
Another aspect that distinguishes successful brokers from the rest of the competition is transparency. The more the broker is transparent and accountable, the more sound and trustworthy their expert advice will be.
We recommend avoiding mortgage brokers that only deal with one or two loan providers. The fewer the broker’s ties, the less likely they’re to act in your best interest. Instead, you want to opt for an independent broker that has access to numerous loan providers.
Before working with any commercial mortgage broker, please make sure they’re listed with the NACFB. Brokers who aren’t listed with the NACFB are most likely running a scam.
The Different Types of Commercial Mortgage Brokers
Generally speaking, there are three types of commercial mortgage brokers. The first type encompasses brokers who offer clients a limited set of deals to choose from, whereas the second type encompasses brokers who work only with a select few lenders.
The third type, which we highly advocate, encompasses whole-of-market brokers. They’re brokers that have ties with numerous lenders and can offer a wide range of mortgage deals.
For a more specific classification, we’d divide mortgage brokers into five different categories, which are:
- Niche commercial brokers
- Buy-to-let commercial brokers
- Bad-credit commercial brokers
- Loan-to-value commercial brokers
- Start-up commercial brokers
The type of commercial mortgage broker you opt for boils down to your circumstances and mortgage needs.
For instance, if you’re a first-time investor or the owner of a start-up, you should opt for a commercial broker that specialises in start-ups.
Similarly, if you have a less-than-ideal credit history, your best bet would be a broker that specialises in bad-credit mortgage loans.
What You Should Expect from a Commercial Broker
The job of any mortgage broker is to simplify and streamline the process of pinpointing the best possible mortgage deal for clients. This applies to both residential and commercial mortgage brokers.
To put it differently, mortgage brokers help save you the time and effort that comes with looking up and comparing different mortgage deals, in addition to offering valuable expert advice.
Another thing that a commercial mortgage broker can offer you is access to challenger banks. Unlike high-street banks, challenger banks are a bit more flexible in their approach to lending, which may come in handy if there are special circumstances surrounding your loan request, be it poor credit, self-employment, and any other reason.
Bear in mind that commercial mortgage brokers accredited by the NACFB are obligated to justify their recommendations, meaning you won’t be led blindly into a purchase without getting a firm grip on why that purchase is in your best interest.
What’s more, NACFB-accredited brokers are obligated to do all of the work on your behalf, from researching and comparing different mortgage deals to talking to lenders and taking care of the paperwork.
Lastly, you should expect your broker to put a lot of effort into understanding your business needs and addressing any concerns you may have so that they’re able to find the best possible mortgage deal.
Commercial Mortgage Broker Fees and Commissions
Commercial mortgage broker fees are typically around £500. The broker may choose to charge the borrower or apply the fee to the lender.
Please keep in mind that not all brokers work the same way. Some brokers apply a fixed fee, whereas others apply an hourly rate. You can also find brokers that charge a small percentage of the mortgage.
There are commercial mortgage brokers that operate on commissions instead of fees. Such brokers don’t charge the borrower; they simply receive commissions from lenders. There are also brokers that charge both the borrower and the lender.
Before working with a commercial mortgage broker, you must first inquire about the fees they charge and make sure they’re in compliance with the Financial Conduct Authority (FCA).
If you come across a broker that isn’t clear about their fees, DO NOT work with them!
How to Choose the Right Commercial Mortgage Broker
Finding the right commercial mortgage broker can be challenging if you don’t know what to look for. First and foremost, you should assess the type of mortgage broker you’re dealing with. Like we mentioned earlier, your best bet is a whole-market broker, as they can offer you plenty of mortgage deals to pick from.
Secondly, you want to assess the broker’s experience and reputation by asking the right questions. One of the most important questions to ask a broker is whether or not they check mortgage deals that are available directly from lenders.
You should also ask your broker about their fees and charges. As we stated earlier, not all brokers operate the same when it comes to fees. Some charge the borrower, some charge the lender, and some charge both. Also, some have fixed rates, some base their fees on mortgage value, and some charge commissions from lenders.
You must also keep in mind that not all mortgage brokers operate face to face; some operate on an online or web-based basis. So, be sure to ask the broker about the basis of their work.
Thirdly, you want to check customer reviews and testimonials to make sure you’re dealing with a client that understands client needs and that always seeks to bring about the best possible deal.
We strongly advise finding independent reviews and testimonials, as the ones on the mortgage broker’s website will most likely be cherry-picked to boost their image and reputation.
Lastly, you should check the broker’s qualifications and authorisation. The only mortgage advice qualification that’s approved by the FCA is the CeMAP, short for Certificate in Mortgage Advice and Practice. Click here to check whether or not a broker is accredited by the FCA.
Important Factors to Consider in a Mortgage Deal
Now that you know all about commercial brokers, it’s time to seal a mortgage deal. But before you do, here are a few factors to consider to ensure the most value for your hard-earned money:
- Annual percentage rate of charge. The APRC is the total estimation of the mortgage deal over the entire repayment term. This rate of charge typically includes associated fees. Knowing the APRC of different mortgages enables you to determine the most cost-effective deal.
- Frequency of interest charge. Some mortgage lenders charge interest on a daily basis, whereas others charge on a monthly basis. With the former, your monthly payments will vary based on the month’s number of days. With the latter, all monthly payments are pretty much the same.
- Size of the initial deposit. As with any mortgage deal, you’re required to put down an initial deposit. The higher that deposit is, the lower the interest and the better the overall mortgage deal will be.
- Loan-to-value ratio. This ratio describes your mortgage loan in comparison to the value of the commercial property you’re looking to purchase. The loan-to-value ratio is of great importance, as some loans can only be accessed if the LTV is at a certain point. For instance, some mortgage deals are only available for 70% LTV.
Researching commercial mortgages in hopes of finding a deal that suits your circumstances and business needs is a process that can take a lot of time and effort if you go at it without professional help.
With the help of a commercial mortgage broker, you won’t have to do any of the heavy lifting. From searching and comparing mortgage deals to finalising paperwork, a commercial mortgage broker will take care of the whole process on your behalf.
Looking for professional advice from commercial finance experts? Clear Commercial Finance has got you covered. Call us on 0333 344 3216 and we’ll be more than happy to respond to your inquiries.