What’s required for a Commercial investment mortgage?
One of the biggest issues facing an investor when obtaining Commercial investment mortgages for a Commercial Investment property is the remaining term of the business lease that the tenant has signed.
Lenders when considering commercial investment mortgages consider six main things:
- The strength of the applicant
- The rent payable, the market rent (if different) and the demand in the area for the property
- The strength of the business tenant – Is it Boots PLC or a new start business
- The term of the lease that the tenant has signed. This can vary from 12 months to 25 years
- The remaining term of the lease. For example if the lease was signed in 1990 for 25 years it will only have 4 years remaining
- Any break clauses in the lease that allows the tenant to walk away from the lease
If you compare the buy to let/residential investment market to the commercial investment market, you will see the big difference is that there are alot more factors in the mortgage process. For buy to let the only factors really considered are the first two as the majority of tenancies are AST’s.
The term of the remaining lease
A number of High Street lenders have a lending policy that the financing term cannot be greater that the remaining lease. Therefore if the remaining business lease is 5 years, then the term of the mortgage must also be for 5 years. The means that the mortgage cannot go ahead because the repayments would be so high to repay the mortgage over 5 years that the mortgage becomes unaffordable.
The good news is that this harsh condition is not shared by all lenders and we have access to lenders that:
- Will consider leases as short as 12 months remaining and will still consider a 20 year financing period
- Will consider residual or part amortisation plans so that even for a short financing period the monthly repayment can be made affordable