Commercial mortgages are similar to residential mortgages, except the collateral is security over the Freehold or long Leasehold of a commercial building or other business real estate – in general not a single residential property although residential property portfolios are common.
In addition, commercial mortgages are typically taken on by businesses instead of individual borrowers. The borrower may be a partnership, incorporated business, or limited company so assessment of the creditworthiness of the business can be more complicated than with residential mortgages.
Types of Commercial Mortgage
A commercial property mortgage is focused solely on the physical premises being funded, a bricks and mortar valuation is required to assess the Open Market Value of the property itself. The type of property mortgage is divided by lenders into those that will be used by the borrower, and those that will be tenanted out – the former being the Owner Occupier commercial mortgage and the latter, the Commercial Investment Mortgage
Owner-Occupier
With this loan, the borrower will need to demonstrate serviceability of the loan from business profits and therefore business accounts will be needed alongside proof of any additional income or secondary security which may be offered.
Commercial Investment
If the loan is to purchase a commercial property on an investment basis then the affordability will be based on the rental income from the property as verified by an independent surveyor as typically lenders will not lend on vacant commercial property.