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.
Buying commercial property requires careful consideration of the various costs involved. Not only will you have to put down a significant deposit (typically between 25 and 50 per cent of the purchase price) but you will also have to budget for the other charges involved in a property purchase. Our guide highlights five of the most common charges and fees that you will encounter when you are buying commercial premises for your business.
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.
Sometimes, you or the lender might want to instruct a more detailed valuation. In this instance, your valuation fee can be significantly higher, particularly if there is a need for a full structural survey. And, you may want to commission your own survey in addition to the one required by the lender which will further increase your valuation fees.
Legal and Professional Fees: As with any property purchase, you will have to instruct a solicitor to act on your behalf. As well as paying legal fees relating to the transaction you may also have to pay other professional fees. These can include site surveys or insurance assessments depending on the specific nature of the property that you are buying.
Costs For Redeeming Your Mortgage Early: If you repay your commercial mortgage early you may have to pay fees to exit the loan. Even changing to a new mortgage product can be classed as exiting the loan, as the commercial mortgage would be repaid in such an instance and so you need to remember this if you want to change lenders. The fees also apply if you sell the property within the early repayment period.
Fees for Mortgage Advice: If you use a mortgage adviser to research the market and broke your commercial mortgage then you may incur fees for their services. Depending on your adviser, you may be able to agree for the fees to be paid to them direct from the lender by way of commission. The fees charged really do depend on the adviser so you would need to have a discussion about their remuneration.
Mortgage broker fees can range from a few hundred pounds to around 1 per cent of the total commercial mortgage amount. Always negotiate with your broker as some brokers may be able to reduce their fee to you by taking a higher fee from the commercial lender involved.
When you are working out the cost effectiveness of your development plan, and the relative cost of purchasing property, don't leave additional costs off the balance sheet. It is tempting to make a deal look better than it actually is by leaving certain costs to one side. This is a false economy and won't help you to fully judge whether a commercial purchase is right for you.
Buying commercial property requires careful consideration of the various costs involved. Not only will you have to put down a significant deposit (typically between 25 and 50 per cent of the purchase price) but you will also have to budget for the other charges involved in a property purchase. Our guide highlights five of the most common charges and fees that you will encounter when you are buying commercial premises for your business.
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.
Sometimes, you or the lender might want to instruct a more detailed valuation. In this instance, your valuation fee can be significantly higher, particularly if there is a need for a full structural survey. And, you may want to commission your own survey in addition to the one required by the lender which will further increase your valuation fees.
Legal and Professional Fees: As with any property purchase, you will have to instruct a solicitor to act on your behalf. As well as paying legal fees relating to the transaction you may also have to pay other professional fees. These can include site surveys or insurance assessments depending on the specific nature of the property that you are buying.
Costs For Redeeming Your Mortgage Early: If you repay your commercial mortgage early you may have to pay fees to exit the loan. Even changing to a new mortgage product can be classed as exiting the loan, as the commercial mortgage would be repaid in such an instance and so you need to remember this if you want to change lenders. The fees also apply if you sell the property within the early repayment period.
Fees for Mortgage Advice: If you use a mortgage adviser to research the market and broke your commercial mortgage then you may incur fees for their services. Depending on your adviser, you may be able to agree for the fees to be paid to them direct from the lender by way of commission. The fees charged really do depend on the adviser so you would need to have a discussion about their remuneration.
Mortgage broker fees can range from a few hundred pounds to around 1 per cent of the total commercial mortgage amount. Always negotiate with your broker as some brokers may be able to reduce their fee to you by taking a higher fee from the commercial lender involved.
When you are working out the cost effectiveness of your development plan, and the relative cost of purchasing property, don't leave additional costs off the balance sheet. It is tempting to make a deal look better than it actually is by leaving certain costs to one side. This is a false economy and won't help you to fully judge whether a commercial purchase is right for you.