Most mortgages come with a range of interest options - and choosing a fixed, variable, tracker or discounted mortgage rate can make a significant difference if you need competitive financing for a commercial investment.
In today's guide, Revolution Brokers explains a little about how commercial mortgages work, what a fixed rate means, and how to find the best product for you.
What is a Fixed-Rate Commercial Mortgage?
As you might expect, a fixed rate means the same as in a residential mortgage.
The lender agrees to a locked-in interest rate for a specific number of months or years, normally at a very advantageous rate compared to their Standard Variable Rate (SVR).
There are two main commercial mortgage types:
- Investment mortgages - apply to businesses buying land or property to rent out and earn an income (including buy-to-let acquisitions).
- Owner-occupier - where the business buys premises to trade from, such as a shop, warehouse, office or storage unit.
Fixed-rate mortgages are popular throughout the commercial lending market because you know exactly what your monthly charge will be.
Average Rates on a UK Fixed-Rate Commercial Mortgage
The interest rates you pay will depend on multiple factors, not least the mortgage lending climate at the time of application.
Fixed rates also fluctuate with interest rates, guided by Bank of England base rates.
It's important to understand because a commercial mortgage is normally considered higher risk than a residential loan, with a larger premium added to account for that risk.
For example, a well-known retailer with strong financials may pay slightly higher interest than the base rate, but a new business in a riskier sector would often be quoted at a far steeper rate.
Do Fixed-Rate Commercial Mortgage Calculators Work?
Online mortgage calculators can be a quick, convenient way to get an indication about things like:
- How much your business may be eligible to borrow.
- What your monthly repayments would look like.
- The interest rates you might be quoted.
- How much deposit you will need.
The issue is that commercial lending covers a massive scope, and there is a huge variance between terms, rates, eligibility rules and products available from business mortgage lenders.
As an unregulated part of the UK mortgage market, your mortgage prospects might look very different depending on which lender you apply to, so a mortgage calculator should only be used as a source of general information.
Most of the time, your actual fixed interest rates will not match those on a calculator, which use averages. They cannot factor in the circumstances, the type of property you wish to buy, your business trading history and credit performance.
Fixed-Rate Commercial Mortgage FAQS
Below we've run through some of the most common questions the Revolution team receives about fixed-rate business mortgages.
If you have further questions we haven't covered here, please contact us on 0330 304 3040 or email our experienced team at info@revolutionbrokers.co.uk.
How Long a Term Can I Get on a Fixed-Rate Commercial Mortgage?
Typically, the longest possible fixed-rate term will be up to ten years, although it's far more probable that you'll be offered rates for two or five years.
What is the Best Way to Improve My Offered Commercial Mortgage Rates?
There are multiple things you can do to improve your chances of commercial mortgage approval or become eligible for the better rates on a fixed-term deal:
- Produce a solid business plan to reassure the lender that your investment will be profitable.
- Check your personal credit history - lenders will look at directors and shareholders as well as the business itself.
- Offer a reasonable deposit. Commercial mortgage deposits are larger than on residential properties, so the more you can offer, the lower the lender’s risk.
- Provide extra security if your deposit isn't substantial, such as a collateral asset owned within the business structure.
Can I Remortgage a Commercial Loan Onto a Fixed-Rate Deal?
Yes - with spiking interest rates and concerns about inflation snowballing over the next few months, many businesses are looking at remortgaging.
Fixed rates mean that you have the confidence that your mortgage costs won't suddenly rise, so they can be a future-proof way of protecting your cash flow.
How Can a Commercial Mortgage Broker Help Me Find a Great Fixed-Rate Product?
We've explained the wide spectrum of commercial mortgages and lenders out there, so the first step to ensuring you get the best possible fixed-rate deal is always to work with an accomplished broker.
Our team will evaluate your borrowing needs, recommend suitable products, and steer you towards lenders whose criteria we know you can comfortably meet.
A broker does more than suggest commercial mortgage products, negotiating on your behalf, discussing your requirements within our network of lenders, and constructing a compelling application to improve your chances of being offered an excellent fixed rate.
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