How can independent retailers refinance their commercial property?

If you're an independent retailer looking to refinance your commercial mortgage and want to know what your options are, this guide from 3mc Mortgages will provide answers to some of your questions.

The guide has been written in a Q&A format with the following questions:

• Is it possible to refinance a commercial property?
• Why would you remortgage a commercial property?
• How much money can I borrow if I remortgage my commercial property?
• What interest rates can I expect on a commercial property refinance?
  
  

Is it possible to refinance a commercial property?

Yes. Commercial mortgage refinancing is like residential remortgaging in that it involves switching from one mortgage product to another while using the same property as collateral. You can remortgage with another lender or renegotiate your existing deal with your existing lender.

When switching to a new lender, they will expect you to pass their lending criteria and affordability checks.

Why would you remortgage a commercial property?

A business or a business owner may want to refinance a commercial property mortgage for a variety of reasons, including:

To change to a better deal with a different provider

Previously, the majority of commercial mortgages in the UK were on variable rates, but fixed-rate deals are now more common.

If you have a fixed-rate mortgage and are about to be switched to the lender's standard variable rate, it can make sense to refinance your commercial property loan. You should also talk to your current lender, to see what they would be prepared to offer, which you can then compare against the market options.

To unlock equity in your commercial property

If you have equity in your property, refinancing your commercial property loan will allow you to access it. Many businesses and business owners do this in order to reinvest the funds in another property, pay off their company's debts, or any other reason that would be acceptable to a lender.

To transition from owner-occupancy to commercial investment

Borrowers could refinance commercial property loans to change the mortgage type from an owner-occupier mortgage to a commercial investment mortgage. Your company may have outgrown its current location and is relocating. Instead of selling the original location, consider renting it to another company to generate rental income.

How much money can I borrow if I remortgage my commercial property?

Each lender may apply different rules when determining how much the lender is willing to offer. Generally, mortgages in this sector are usually tailored to the borrower's needs and circumstances.

When you apply to remortgage a commercial property, most lenders will use earnings before interest, tax, depreciation, and amortisation (EBITDA). This is a key element to determine whether you and/or your business can afford the new mortgage.

They will want to see that the business is profitable enough to cover the mortgage payments.

If your company's adjusted net profit is insufficient to cover the mortgage, some lenders will allow borrowers to declare other sources of income.

What interest rates can I expect on a commercial property refinance?

If you want to refinance a commercial building, you will undoubtedly want to get the best rates possible. Commercial lenders, in general, decide which rates to offer on a case-by-case basis, and the best way to ensure you get the best rates is to seek advice from a broker who has access to the entire market.

The Loan-To-Value (LTV) Ratio

The maximum loan-to-value (LTV) ratio for a commercial mortgage in the UK is in the region of 75%, some lenders may restrict it to 60%. The more equity you have in your property, the lower the risk for the lender.

It may be possible to remortgage a business mortgage with a higher LTV than 75% by providing additional security, such as another property in which you own equity.

History of trading

The length of time your company has been in business can also have an impact on commercial mortgage interest rates, some lenders prefer borrowers with industry experience. If you are switching to a new provider, your lender options may be limited based on how long you have been in business.

With the assistance of a mortgage broker, it may be possible to find a favourable deal even if your company has only been in operation for a few years.

The type of business

If your company has a proven track record in its field, the lender is more likely to consider the investment viable and thus offer favourable terms. Some industries, however, are riskier than others and may necessitate the use of a specialised lender.

We know that most of the time you are too busy running your business to think about remortgaging, so sit back and let us do all the hard work for you so you can get on doing the thing you love most, running your business. Contact 3mc today on 0161 962 7800 or to start an enquiry click here.

And remember £395 reduced broker fee for Bira members and their employees. For your first application with 3mc (UK) Limited, your broker fee is reduced by £100 when compared to their standard non-member broker fee of £495.

Check out 3mc Mortgages here