Taking out a commercial mortgage is not always quite so straight forward as many may believe. There are a few things that you need to think about beforehand, and in this article we look into the costs involved with entering into a commercial mortgage contract.
You must accept that this will be a fundamentally costly process for your business, though if you consider that the expenditure is an investment, it does make a lot more sense. You will have to put a considerable amount of business capital into the purchase of a commercial property. (typically you will need at least a 25 per cent deposit to be eligible for a commercial mortgage, a far higher percentage than in a normal mortgage). Alas, this is just the beginning of the expense, not the end. There are various other fees and charges that you will encounter when taking out a commercial mortgage or business loan. The purpose of this guide is to explain five of the most common fees and charges that are incurred when taking out a commercial mortgage to buy retail, manufacturing or office space.
Arrangement or Booking Fees: Banks, like all service sector industries, charge for as many of their services as they possibly can. Banks charge arranging fees for negotiating your mortgage for you. These are often not rigidly enforced and often open to negotiation. They can often depend on other factors such as the interest rate that you are being charged. On average you are likely to pay a fee in the region of 0.5 to 1.5 per cent of the total value of the loan, but it is becoming increasingly common for lenders to add the arrangement fee to the value of the loan.
The Valuation Fee: The first stage of the buying process will see the need for a valuation from yourself and the lender to make sure the property is worth the price and make sure the mortgage is set at the right level also. It will fall to you to pay for the cost of the valuation though again there is a chance it can served, depending on the purchase price and value in the first place.
Don’t discount the need for a thorough structural survey by a conveyor, wither you or the lender could demand this to ease any fears of what the valuation brought up, especially if it is an older building. Obviously this will send the costs of the valuation fee skywards and to be 110% sure you might need/want to get two surveys conducted by separate conveyors.
Fees for Professional Services and Conveyancing: When you buy a commercial property, conveyancing would need to be done by a solicitor to deal with the legal paperwork. There may be other professional fees that you will need to pay and so you will need to look into this thoroughly before starting the process.
Early Repayment Charges: Property owners, both residential and commercial, dream of the day that their mortgage is repaid. However, there are penalties attached to the repayment of mortgages before the full term of the loan has passed. These charges are payable if you repay your commercial mortgage early – normally within the first three to five years of the mortgage having been taken out. It is important when you take out a commercial mortgage that you make sure you know whether you will be liable for any penalties for early repayment and how long these apply for.
Broker Fees: If you approached and hired the services of an independent mortgage broker, for advice and/or to find and set up a commercial mortgage then you will have to pay their fees for services rendered.
Again, it is worth checking with your broker whether they expect payment from you upon completion in a lump sum or they might take a commission fee directly from the lender. The fees can range because of a variety of factors, so this is something you will need to discuss to get a ballpark figure, though you can expect the fee to be anywhere from 300 to 1% of the mortgage borrowed, a very broad spectrum I think you’ll agree.
As you can see, there are many costs to consider, so you will need a good amount of money behind you before you start thinking about buying commercial premises.
Howard O’Gollegos writes for Just Commercial Mortgages the UK’s No1 site for the latest commercial mortgage rates and commercial property finance news.
|
|