Buying a commercial property can offer you great returns both in terms of income and capital growth. However, once you have completed on your commercial mortgage and taken ownership of the property you then have to worry about leasing the property, which will often be done through a commercial letting agent.
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.
Valuation fee: The property has to be professionally valued before it can be purchased and both the purchaser and the lender will need to have access to a full valuation of the property. The valuation fee that you will have to pay will depend on the size and the value of the property that you are interested in, but it can become more costly if a full survey is needed. As a rule of thumb a survey is always a good idea.
Normally a full structural survey will be required for an old or unusual building. This will make the valuation fee costs may be significantly higher. It may be tempting at this stage to ignore the full structural survey but this is almost certainly a false economy, if you have dry rot in the building you need to know about it.
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: A mortgage broker can be a very useful service to employ when you are looking for the best deal, but as with all services, there is a price tag attached. Approaching a broker is a good idea because often they have access to rates that are not available on the high street, but many will charge a fee for their services.
Many mortgage brokers are paid by the lender involved whilst others will charge a fee directly to you. It is generally better that you pay the fee yourself because at least you can be sure that you’re not getting the advice a lender wants to sell you. Fees for broker services tend to range from 300 to around 1 per cent of the total value of the commercial mortgage.
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.
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