Types of commercial mortgage
There are lots of different commercial mortgages available, mainly because there are lots of situations in which businesses might want to purchase a property.
The main types of commercial mortgages are listed below, with a brief description of what they are. Allica doesn’t offer all of these commercial mortgages but there are specialist lenders available who will.
Owner-occupied commercial mortgage
This type of mortgage can be used to finance a property where the owner uses the property in the day-to-day operations of their business. They cover a range of business premises, including offices, factories, shops and more, and are available to a range of business types, such as sole traders, limited companies, partnerships and limited liability partnerships (LLPs).
Commercial investment mortgages
This type of mortgage is used to finance a property that will be rented out to business tenants, rather than being used by the owner in their day-to-day operations. It would be available for business properties such as offices, factories, shops and more but these would be used by the business tenants rather than the owner.
In this way, it is similar to how landlords use buy-to-let mortgages for residential properties that they want to fill with rent paying tenants.
Also referred to as mixed-use mortgages, these are mortgages that finance the purchase of properties with both residential and commercial elements to them. These include properties that business owners live in and work from, as well as properties that are let out by the owners.
Limited company buy-to-let mortgages
Buy-to-let mortgages for limited companies are used by people who want to purchase residential properties to let out but want to do so with the properties held by a company, rather than any individual. There are various reasons why a landlord might choose this approach, one of which might be to receive rental income into a business for tax purposes.
Property development mortgages
As the name suggests, this type of mortgage is used to finance the building and development of residential or commercial properties. These are typically a form of relatively short-term financing, as the point of borrowing the money is to finance the building of a property that can then be sold or remortgaged at its new, fully developed price.
Commercial bridging loans are used by owners of commercial property as a short-term form of finance, which is secured against their property. As commercial bridging can be used for all sorts of reasons, it would take too long to explain them all here. However, some common ones include accessing cash to pay an unexpected bill or to cover refurbishment costs.
If a company wants to separate its property assets from its operating business, it might choose the ‘Opco/Propco’ or ‘Operating Company/Property Company’ structure. In this situation, it is common for the operating company to be the property company’s tenant, which may enable the Propco to access better commercial mortgage terms, based on the rent the Opco pays it.
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