Interest-Only Commercial Mortgage
For Buying & Refinancing UK Property
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What Is an Interest-Only Commercial Mortgage?
How Does an Interest-Only Commercial Mortgage Work?
Commercial Mortgage Case Studies
Benefits of Interest-Only Commercial Mortgages
What Types of Commercial Properties Are Eligible?
Should I Get an Interest-Only Commercial Mortgage?
How Brokers Help Secure Interest-Only Commercial Mortgages
Which Lenders Offer Interest-Only Commercial Mortgages?
As a specialist interest-only commercial mortgage broker, we provide high-quality commercial mortgage solutions for our clients.
Our service provides:
- Market leading rates
- Up to 80% Loan To Value
- Commercial & semi-commercial mortgages from £100,000 to £100 Million
- Portfolio deals
- Owner occupied commercial mortgage options
- Short term commercial finance solutions from 3 to 24 months
- Finance options for England, Scotland, Wales and Northern Ireland (We can also source finance for projects in Ireland)
- Interest roll-up options
- Same-day agreement in principle
- Products with no early repayment charges
- We can accept applications from individuals (first-time landlords accepted), limited companies, SPV's and offshore structures
- We are independent and have strong relationships with many commercial lenders as well as private banks, wealth managers and specialist lenders that are not available on the high street
- Finance for residential & commercial sectors, including retail outlets, offices, warehouses, industrial units, factories, HMOs, nursing homes and care homes, investment properties, development projects and buy-to-let property (btl portfolios and limited companies welcome)
We pride ourselves on providing excellent service responsive to your needs.
Call us on 0203 900 4322 to discuss your requirements.
What Is an Interest-Only Commercial Mortgage?
An interest-only commercial mortgage is a type of loan where the borrower only pays the interest on the loan each month for a specified term.
This means that while the monthly payments are significantly lower than a repayment mortgage, the full loan amount (the principal) remains outstanding until the end of the mortgage term. At that point, the borrower must either repay the loan in full, refinance, or sell the property.
Key Features
- Lower monthly payments: Only the interest is paid during the term, which reduces ongoing costs for the business.
- Lump-sum payment at the end: The original loan amount must be repaid in full at the end of the term.
- Shorter terms available: Interest-only commercial mortgages often come with terms between 1 and 10 years, though longer terms can be negotiated.
- Higher deposit required: Typically, lenders require a larger deposit for interest-only mortgages, often between 25% and 40% Loan to Value (LTV).
How Does an Interest-Only Commercial Mortgage Work?
When you take out an interest-only commercial mortgage, your monthly payments cover only the interest accrued on the loan.
For example, if you borrow £500,000 at an interest rate of 5%, your monthly payments would cover 5% of £500,000 for that year, split into 12 instalments. The principal amount of £500,000 remains untouched until the mortgage reaches its end date.
At the end of the mortgage term, you'll need to repay the full loan amount, either through refinancing, selling the property, or paying off the balance with available funds. Refinancing is a common option, allowing you to take out a new loan to cover the old one, often on more favourable terms if property values have increased.
Commercial Mortgage Case Studies
Benefits of Interest-Only Commercial Mortgages
Interest-only commercial mortgages can offer significant advantages to businesses, especially those aiming to manage cash flow effectively or invest in properties with expected value appreciation. Here are some key benefits:
- Improved Cash Flow - Since you're only paying interest, your monthly payments are lower, allowing you to allocate more cash towards growing your business or other operational costs.
- Flexibility - An interest-only commercial mortgage gives you more financial breathing room, particularly if you're waiting for your property to increase in value or you're planning a significant business expansion in the future.
- Potential for Property Value Growth - If you expect the value of your commercial property to rise, you may benefit from selling or refinancing the property at a higher value when the mortgage term ends.
- Tax Advantages - Interest payments on a commercial mortgage can often be offset against profits, reducing your corporation tax liability. Speak with a financial adviser to ensure you maximise these benefits.
What Types of Commercial Properties Are Eligible?
Interest-only mortgages can be used for a wide range of commercial property types, including:
- Offices and Retail Spaces: Ideal for businesses seeking to own their premises without the burden of high monthly repayments.
- Warehouses and Industrial Units: Popular for businesses looking to invest in larger premises with the flexibility to pay off the loan in the future.
- Buy-to-Let Properties: Many landlords use interest-only mortgages for commercial buy-to-let properties, as rental income can be used to service the interest while the property appreciates in value.
- Development Projects: For property developers, interest-only mortgages offer a way to fund projects during the build phase, with the intention to sell or refinance once completed.
Should I Get an Interest-Only Commercial Mortgage?
Interest-only commercial mortgages can be an attractive option for businesses or investors looking to manage cash flow, reduce monthly repayments, or keep flexibility over the use of funds. However, it’s crucial to understand if this type of mortgage aligns with your financial strategy and long-term goals.
Here are some common scenarios where an interest-only commercial mortgage might be a good fit:
You're Expecting a Significant Increase in Revenue or Capital
If you're forecasting a substantial rise in income, such as a business expansion or increased profits, an interest-only mortgage could allow you to secure a commercial property now. Later, when your finances improve, you can switch to a repayment mortgage or pay off the loan in a lump sum. For instance, if you're expecting a significant contract win, or an influx of capital from investments or sales, this option keeps your initial costs low.
Your Business Has Fluctuating Cash Flow
Interest-only mortgages can be particularly beneficial for businesses with unpredictable or seasonal revenue. If your income comes from large commissions, project-based payments, or cyclical sales, committing to a high fixed repayment might not be feasible. With an interest-only mortgage, you can keep your monthly payments manageable, allowing you to pay off larger amounts when your cash flow improves.
You Plan to Sell Another Property in the Future
If you have another asset or property that you intend to sell in the future to cover the mortgage, an interest-only loan provides a bridge between the property purchase and the eventual sale. During this period, you only need to pay the interest, ensuring your cash flow remains free for other investments or operational needs. Once the sale is completed, you can pay off the principal loan amount in full.
Buy-to-Let Investors Looking for Capital Growth
Interest-only commercial mortgages are a popular strategy for buy-to-let landlords. By taking out an interest-only loan on a commercial property, landlords can use the rental income to cover the lower monthly payments. Over time, they benefit from the potential appreciation of the property. Upon selling, they repay the mortgage and keep the profits from both rental income and any capital gains made on the property’s value.
How Brokers Help Secure Interest-Only Commercial Mortgages
Navigating the commercial mortgage market can be complex, especially when it comes to interest-only options. A specialist broker can guide you through the process, ensuring you access the best deals suited to your business’s needs.
- Access to Specialist Lenders - Some of the best interest-only commercial mortgage deals come from lenders who don't advertise their products publicly. Brokers often have strong relationships with these lenders, including private banks and wealth managers.
- Tailored Advice - A broker will assess your unique financial situation and commercial goals to find the most suitable mortgage option. This could involve comparing rates, fees, and repayment terms across different lenders.
- Negotiating Rates - Commercial mortgage brokers often have the leverage to negotiate better rates on your behalf. They'll ensure that you get the most competitive deal, whether from high street banks or specialist lenders.
- Streamlining the Application Process - Applying for a commercial mortgage involves a lot of paperwork and due diligence. Brokers can help manage the application process, ensuring everything runs smoothly and increasing your chances of approval.
Commercial Mortgage Calculator
For a better initial understanding of what you'll pay for a commercial mortgage, use our commercial mortgage calculator.
Which Lenders Offer Interest-Only Commercial Mortgages?
Many UK lenders offer interest-only options for commercial mortgages, though availability and terms will vary depending on the lender’s criteria and your financial situation. Here are some common types of lenders:
- High Street Banks: Barclays, NatWest, and HSBC all offer commercial mortgage options, but interest-only products may come with stricter eligibility requirements.
- Challenger Banks: Banks like Aldermore and Metro Bank offer more flexible criteria, though interest rates may be higher.
- Specialist Lenders: Lenders like Shawbrook Bank, Paragon, and Precise Mortgages often provide interest-only solutions tailored to commercial property investors and landlords.
- Private Lenders: Private Banks and wealth managers typically offer bespoke interest-only mortgages for high-net-worth individuals and larger commercial projects.
Factors to Consider Before Applying
Before committing to an interest-only commercial mortgage, there are several important factors to consider:
Get Expert Advice on Interest-Only Commercial Mortgages
If you think an interest-only commercial mortgage could be the right choice for your business, speaking with a specialist mortgage broker is the best way to explore your options. At Clifton Private Finance, we can help you find the most competitive rates and terms suited to your needs, whether you're purchasing a new property or refinancing an existing one.
Our loan service provides:
- Market-leading rates
- Fast service - finance within 5 to 7 days
- Access to specialist lenders
- Expert advice - professional service
If you’re in need of an interest-only commercial mortgage, call us on 0203 880 8890 or book a free consultation below.
FAQs: Interest-Only Commercial Mortgages
What is the typical term for an interest-only commercial mortgage?
Interest-only commercial mortgages typically have terms ranging from 1 to 10 years. Longer terms may be available depending on the lender and property type.
Can I switch to a repayment mortgage later?
Yes, many lenders offer the option to switch to a repayment mortgage at the end of the interest-only term or even earlier if your financial situation changes.
What happens if I can't repay the loan at the end of the term?
If you're unable to repay the loan in full, you may be able to refinance the mortgage, sell the property, or negotiate a new deal with your lender.
Are interest-only commercial mortgages available for all property types?
Yes, interest-only mortgages can be used for various commercial property types, including offices, warehouses, retail spaces, and buy-to-let investments.
How does an interest-only mortgage affect my tax bill?
Interest payments on a commercial mortgage can often be deducted from your taxable profits, providing a potential tax advantage. Always consult with a tax adviser for specific guidance.
Can first-time buyers qualify for interest-only commercial mortgages?
Yes, first-time commercial buyers can apply for interest-only mortgages, but they may need to provide a larger deposit and demonstrate a strong financial plan to qualify.
What credit score do I need to qualify for an interest-only commercial mortgage?
Lenders will assess your overall financial health, including your credit score, but there is no universal minimum score. Working with a broker can help improve your chances of approval.
Are interest rates higher for interest-only mortgages?
Interest rates on interest-only mortgages may be slightly higher due to the added risk for lenders. However, brokers can help you find competitive rates tailored to your situation.
If you have any questions about our services or want to start making things happen please contact us
