Friday 3 June 2022

What is a Fixed-Rate Commercial Mortgage?

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?

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 uses averages. They cannot factor in the circumstances, the type of property you wish to buy, your business trading history, and credit performance.

In conclusion, choosing a fixed-rate commercial mortgage offers businesses stability and predictability in their monthly repayments, which can be crucial for financial planning and cash flow management.

Understanding the different types of commercial mortgages, such as investment and owner-occupier loans, helps in selecting the most suitable option for your needs. Fixed-rate mortgages are particularly advantageous in providing a shield against fluctuating interest rates, allowing businesses to budget with confidence.

While online mortgage calculators provide a useful starting point, the actual rates and terms you qualify for will depend on a variety of factors, including your business's financial health, credit history, and the type of property you're purchasing.

Working with a knowledgeable commercial mortgage broker can significantly enhance your chances of securing a favorable fixed-rate deal. Brokers can navigate the complex landscape of commercial lending, negotiate better terms, and help you present a strong application.

Overall, securing a fixed-rate commercial mortgage requires careful planning, a solid business strategy, and the right professional guidance. By leveraging the expertise of a commercial mortgage broker, businesses can find the best mortgage products tailored to their specific needs, ensuring long-term financial stability and growth.

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 toward lenders whose criteria we know you can comfortably meet.

A broker does more than suggest commercial mortgage products, negotiate on your behalf, discuss your requirements within our network of lenders, and construct a compelling application to improve your chances of being offered an excellent fixed rate.

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