How Much Deposit Do I Need For A Commercial Mortgage?

Determining the deposit required for a commercial mortgage is a crucial step in your business’s financial planning. Unlike residential mortgages, commercial mortgages offer more flexibility in assessing applications, which means deposit amounts are somewhat negotiable. In this blog, we’ll explore the factors influencing the deposit amount for a commercial mortgage, discuss options for borrowers with varying deposit sizes, and emphasize the role and importance of an experienced commercial mortgage broker in securing the best deal.

 

How Much Deposit Do You Need for a Commercial Mortgage?

A commercial mortgage normally requires a deposit in the region of 20% to 40%. However, this amount can change depending on a number of variables, namely the perceived risk of your loan application. Lenders assess various factors to determine the deposit requirement.

 

Factors Affecting Deposit Requirements:

 

It’s important to note that some lenders may impose minimum deposit amounts regardless of the loan-to-value ratio. Below are some of the factors the affects the deposit requirements:

  • Industry Experience: Established and successful businesses are viewed as lower risk and may secure a loan with a lower deposit.
  • Profitability: A solid business plan, strong financial results over several years, and positive forecasts reduce the risk for lenders, potentially leading to a lower deposit requirement.
  • Business Type: Certain businesses, such as pubs or clubs, may be considered higher risk, leading to larger deposit requirements compared to businesses in less risky sectors.
  • Credit History: Adverse credit history for either the business or individuals involved can increase deposit requirements due to perceived higher risk.
  • Loan Type: Owner-occupiers seeking commercial properties for their own use may require lower deposits than those taking out commercial investment mortgages, which are similar to buy-to-let mortgages.
  • Property Type: Non-standard construction or properties needing significant renovations may necessitate a higher deposit.

 

Options for Borrowers with a Low Deposit

 

Borrowers with a limited deposit can explore various options:

  • Use Other Assets as Security: Borrowers can secure a commercial mortgage with a low cash deposit by offering other assets as collateral. These assets may belong to the business or the borrower personally. Equity in another property or equipment can serve as collateral.
  • Combination of Cash and Assets: It’s common to combine cash and assets to form a deposit, allowing for more flexibility. However, a low deposit may limit the number of available lenders and potentially result in higher interest rates.

 

How to Fund Your Deposit?

While cash is the straightforward method for the deposit, lenders understand that not everyone has substantial cash reserves. Therefore, they may consider alternative methods, including:

 

  • Working Capital: Using business working capital as part of the deposit.
  • External Investment: Seeking external investment or partnerships to fund the deposit.
  • Bridging Finance: If the intent is to sell the property shortly, bridging finance can be used as a short-term solution to secure the property.
  • Commercial Finance: Exploring commercial financing options to contribute to the deposit.

 

How a Broker Can Help?

A professional broker at Property Finance Compare can provide guidance on the most suitable funding option based on your specific circumstances. Since, navigating the complexities of commercial mortgages, especially when dealing with varying deposit amounts, requires insider knowledge. A whole-of-market broker, experienced in commercial mortgages, can identify lenders willing to work with your specific situation and negotiate favorable terms. Brokers at PropertyFinanceCompany can advocate on your behalf and negotiate deals tailored to your deposit amount. Whether you have a substantial deposit or none at all, a broker can save you significant sums over the loan term.

 

Conclusion

Securing a commercial mortgage with the right deposit amount is a critical step for businesses. With the help of an experienced commercial mortgage broker, you can navigate the complexities, explore funding options, and secure the best possible deal for your unique circumstances. If you’re seeking a commercial mortgage, consider consulting with a professional broker at Property Finance Compare to maximise your chances of success.

Non-Standard Construction Mortgages & How To Get One?

Securing a mortgage for non-standard construction properties can be a challenge, but it’s not impossible. Specialist lenders exist to cater to these unique situations, offering competitive deals on mortgages. While mortgage brokers are often the quickest way to find such mortgages, this guide aims to provide comprehensive insights into non-standard construction properties and the associated mortgage options.

 

What is a Non-Standard Construction Mortgage?

Non-standard construction mortgages are specialised loans designed for properties with unconventional construction types. These properties deviate from the typical brick-and-mortar structures found in standard homes. Some mortgage lenders are hesitant to offer loans for such properties due to the added complexities and risks involved in assessing both the property and the loan application. However, certain mortgage lenders specialize in non-standard construction properties and provide streamlined underwriting processes with competitive rates, given their understanding of these unique properties.

 

What Qualifies as a Non-Standard Construction Property?

Several factors can classify a property as non-standard construction. Common examples include properties with:

  • Thatched roofs
  • Steel or timber frames
  • National Heritage Listings with historical or architectural significance
  • Tower blocks or high-rise flats
  • Properties constructed from concrete
  • Pre-fabricated buildings
  • British Iron and Steel Foundation (BISF) properties

 

Other unconventional features, such as walls made entirely of glass or the use of non-traditional building materials, can also lead to a property being considered non-standard construction. The category is broad, reflecting the wide array of materials and construction methods employed by builders and architects.

 

Challenges with Non-Standard Construction Mortgages

From a lender’s perspective, providing mortgages for non-standard construction properties poses additional risks and complications. For example, thatched roofs, common in country cottages, require regular and costly maintenance. Lenders consider these factors, which can impact borrowers’ ability to make mortgage repayments. Additionally, the need for roof replacement during the mortgage term can be a significant expense. Fire hazards associated with thatched roofs can lead to higher building insurance premiums, further adding to the risk.

 

Issues Faced by Banks

Many non-standard properties share drawbacks similar to thatched roofs, such as being:

  • Safety hazards
  • Expensive to maintain
  • Difficult to insure due to safety or security concerns
  • Subject to rigorous inspections and risk assessments that entail higher costs for lenders
  • Challenging to sell due to complications associated with non-standard construction

 

For listed building mortgages, repairs typically require the use of original materials, which can be more expensive and present an additional risk to lenders.

 

Can a Non-Standard House Be Converted to Standard Construction?

Converting a non-standard construction property into a standard one is possible, but the feasibility depends on the specific issues involved. For properties with steel or timber frames, complete rebuilding may be necessary. Replacing the roof or reconstructing walls is a viable option but can be expensive, potentially outweighing any benefits gained from qualifying for a standard mortgage. In cases where a property is unmortgageable, using a bridging loan to secure the purchase, complete renovations, and subsequently refinance with a standard mortgage may be a solution.

 

Difficulty of Getting Mortgages on New Builds

New build properties, classified as non-standard construction, can pose challenges for obtaining mortgages. For instance, pre-fabricated homes, constructed off-site and often made of concrete, are efficient in terms of production but can incur substantial expenses for repairs or replacement due to their construction method. These factors make them more expensive to insure and riskier for lenders.

 

Challenges with Concrete Houses

Concrete homes, particularly pre-fab structures assembled on-site, can be challenging to insure and may pose difficulties in securing a mortgage from traditional lenders. However, specialist lenders or mortgage brokers with expertise in non-standard construction properties can still offer lending options for such properties.

 

How to Get a Non-Standard Construction Mortgage?

Similar to standard mortgages, lenders offering non-standard construction mortgages will assess your personal circumstances, financial situation, and potentially your experience with property development if renovation work is required. Seeking advice from specialist mortgage advisers, like FinSpace, streamlines the process and provides access to the best available deals.

 

These advisers have expertise in the non-standard construction mortgage market, allowing them to identify the most suitable lenders for each situation and compare rates and terms. With their guidance, applicants can be well-prepared and obtain pre-approval before making an offer on a property, reducing hassle and ensuring access to favourable lending options.

 

Conclusion

Navigating the world of non-standard construction mortgages requires expertise and access to the right lenders. This is where FinSpace can be your trusted partner. Our team of mortgage advisers specializes in finding tailored solutions for unique property situations, including non-standard constructions. Property Finance Compare is your partner in securing a non-standard construction mortgage. With our expertise and industry connections, we make the complex process simpler and more accessible, helping you achieve your property ownership goals, even in the world of unique and unconventional constructions.

Purchasing a Buy-to-Let Property at Auction with a Mortgage

Auctions offer opportunities to buy properties at lower prices and discover unique options outside the scope of estate agents. They are particularly beneficial for identifying the potential in neglected or unconventional buildings. Many individuals seeking buy-to-let properties now turn to auctions as it bypasses the conventional house-buying process, enabling landlords to acquire properties affordably, renovate them, and expedite the rental process.

Purchasing a Buy-to-Let Property at Auction with a Mortgage – Explained

When purchasing a property at auction using a mortgage, there are some differences in requirements compared to traditional house purchases. Obtaining a commercial mortgage can be more challenging due to the limited number of lenders available.

The tight timelines involved in auction purchases add pressure on the buyer, solicitor, and mortgage provider. Upon winning the auction, you must pay a 10% deposit immediately and secure the remaining 90% within 28 days. Failure to do so results in the loss of the deposit and the re-posession of the property.

To facilitate a smooth auction purchase with a mortgage, it is highly recommended to have a mortgage in principle arranged beforehand. This ensures that funds can be released promptly upon winning the auction. Specialist lenders exist who cater to auction purchases and can expedite the mortgage application process. It is also advisable to work with a solicitor experienced in fast property transactions.

If you are unable to secure funds quickly, you may be responsible for the costs associated with reselling the property, as well as any shortfall between the initial agreed price and the closing sale price. Additionally, interest charges may apply during the period before the property is sold.

Online auctions often offer more flexible timescales. Buyers typically pay a non-refundable reservation fee and have a longer duration to complete the transaction, including arranging additional financing such as a mortgage.

Are there Any Risks When Purchasing a Buy-to-Let Property at Auction with a Mortgage?

Buying a house at auction carries certain risks that buyers should be aware of:

  • Competitive Bidding: There is a risk of being outbid by other potential buyers, which may result in losing the opportunity to purchase the property. It’s essential to set a budget and be prepared for the possibility of someone exceeding it.
  • Investment Loss: Prior to the auction, buyers typically invest time and resources in conducting research on the property. If they are unsuccessful in securing the property or decide not to bid, they may incur financial losses associated with the research phase.
  • Guide Price Misleading: The guide price provided by the auctioneer is often set low to stimulate bidding. The final sale price can significantly surpass the guide price, so relying solely on it may result in underestimating the property’s actual value. It is advisable to consult local estate agents and examine recent sale prices in the area for a more accurate assessment.
  • Property Condition: Auction properties are typically sold “as-is,” meaning buyers may have limited opportunities to inspect the property thoroughly. There is a risk of hidden issues or costly repairs that may only become apparent after the purchase.
  • Legal and Financial Risks: Due to the accelerated timeline involved in auction purchases, there is a higher pressure on completing legal and financial processes within a limited timeframe. If you fail to meet deadlines or encounter legal complications then it could lead to financial and legal consequences.

What Are the Advantages of Buying a Property at Auction?

Buying a property at auction offers several advantages:

  • Faster Process: The auction process is typically much faster comparatively to traditional property purchases. From placing a bid to completing the transaction, the timeline is often measured in weeks rather than months. This can be beneficial for those looking for a quick purchase or investment opportunity.
  • Transparency: Auctions provide a transparent environment for property transactions. The bidding process is open and competitive, ensuring fairness and preventing gazumping (being outbid after an initial offer has been accepted). This transparency can give buyers confidence in the purchase process.
  • Avoidance of Property Chains: Purchasing at auction eliminates the risk of property chain issues. Property chains occur when multiple buyers and sellers are linked together, and a failure or delay in one transaction can impact the entire chain. By buying at auction, buyers bypass this potential problem, as the sale is direct and independent of other property transactions.
  • Reduced Negotiation: In an auction scenario, negotiation is minimal. Competitive bidding establishes the price and eliminates the protracted negotiations frequently involved in conventional real estate transactions. This might make the purchasing process easier and faster.

Why Do I Need A Mortgage To Buy A House At Auction?

If you don’t have enough cash on hand to meet the buying price, a mortgage can be required in order to purchase a home at auction. Unless they have access to a substantial sum of money or another property they can sell to finance the purchase, this rule applies to anybody intending to buy a home or a buy-to-let property. In these situations, getting a mortgage helps close the cash difference and makes buying the auction property easier.

Capital Gains Tax on Buy-to-let: What You Need to Know

Capital Gains Tax on Buy-to-let: What You Need to Know

Capital Gains Tax on Buy-to-let

Investors looking to make a profit are drawn to the current strong real estate market. Before getting started, landlords must understand how Capital Gains Tax (CGT) would affect their real estate transactions. There are ways to lower the CGT payment even if it is based on the price differential between the buying and selling prices. This article discusses all you need to know about CGT on buy-to-let, so let’s get started!

What is Capital Gains Tax?

Capital gains tax (CGT) is a tax on the profit made when you sell or dispose of an asset that has increased in value. The amount of tax owed is calculated based on the price you paid for the asset (the ‘base cost’) and the price you sold it for. Some assets, such as your main home, are exempt from CGT. However, if you sell a rental property that has increased in value since you bought it, you may be liable to pay CGT on some or all of the profit.

 

What is the Capital Gains Tax Rate on Buy-to-let Property?

The rate of CGT that a landlord must pay on the sale of a buy-to-let property is determined by their taxable income. Basic rate taxpayers earning £50,000 or less will pay a CGT rate of 18%, while higher rate taxpayers earning £50,000  or more will pay a rate of 28%.

To illustrate, if a landlord purchased a rental property for £100,000 a decade ago and sold it today for £150,000, their capital gain would be £50,000, of which £37,700 would be taxable after the CGT allowance is taken into account. Assuming no other tax reliefs, the resulting CGT bill would be £6,786 for basic-rate taxpayers or £10,556 for higher-rate taxpayers. The benefit of CGT is that it is taxed separately from other income, which means that a landlord’s tax bracket for their other income will remain unchanged.

 

Why do you pay capital gains tax on Buy-to-let?

You pay capital gains tax on Buy-to-let because it is considered a type of investment. When you sell or dispose of an asset that has increased in value, such as a rental property, you make a profit which is known as a capital gain. Capital gains tax is charged on this profit. The rationale behind this tax is to ensure that individuals who make a profit from investments, including rental properties, contribute their fair share to the overall tax revenue of the country.

 

Who Pays the Capital Gains Tax on Buy-to-let?

The owner of the buy-to-let property who sells it or otherwise disposes of it and makes a profit is liable for paying capital gains tax on that gain. This implies that rather than the tenant who is renting the property, the landlord who sells the rental property is the one who must pay the capital gains tax.

When is the Capital Gains Tax Paid on Buy-to-let?

As the owner of a buy-to-let property, you may be required to pay capital gains tax (CGT) on any profits you make when you sell it. If you sold a rental property between 6th April 2022, and 27th October, 2023, and are required to pay CGT, you have 30 days from the completion date to notify HMRC and make a payment. If the sale was completed after this date, you must make the payment within 60 days. Failing to report the sale and pay the tax on time may result in penalty fees and interest charges.

You can make the payment online through the Government Gateway using a user ID and password. If you do not have these, you can create an account when you report and pay. If you usually complete a self-assessment tax return, you will also need to provide details of any capital gains you have made at the end of the relevant tax year.

What Are the Buy-to-let Capital Gains Tax Reliefs?

Several buy-to-let capital gains tax reliefs available can help reduce the amount of tax you pay. Here are a few:

  • Capital gains tax allowance: Every individual has an annual CGT allowance, which is currently £12,300 (as of tax year 2022/23). This means that you can make a profit of up to this amount on the sale of an asset, including a buy-to-let property, without having to pay any CGT.
  • Private residence relief: If the buy-to-let property was your main residence at any point during your ownership, you may be able to claim Private Residence Relief (PRR). PRR can reduce or eliminate the amount of CGT you owe. The relief you get depends on how long you lived in the property as your main home.
  • Letting relief: If the property was once your main residence but you let it out before selling, you may be able to claim to let relief. This relief can reduce the CGT bill by up to £40,000 per owner. The relief you get depends on how long you lived in the property as your main home and how long you rented it out.
  • Gift relief: If you gift the property to your spouse or civil partner, you can transfer ownership without incurring any CGT. However, if you gift it to anyone else, you may still have to pay CGT on the transfer.
  • Incorporation relief: If you hold the buy-to-let property as an individual, you may be able to transfer it to a limited company without incurring CGT. This is known as incorporation relief. However, transferring a property to a company may trigger other tax implications, such as stamp duty and corporation tax.

Conclusion

Landlords need to understand the implications of Capital Gains Tax (CGT) on buy-to-let property transactions, as it can significantly affect their profits. CGT is calculated based on the difference between the purchase and sale price of an asset, and buy-to-let properties are considered investments subject to CGT. The rate of CGT that landlords pay depends on their taxable income.

However, there are several CGT reliefs available that can help reduce the amount of tax owed. It is essential to understand these reliefs and their eligibility criteria to lower the CGT payment. So, landlords must report and pay CGT on time to avoid penalty fees and interest charges.

How To Get A Mortgage For An Auction Property

How To Get A Mortgage For An Auction Property

Are you interested in buying an auction property but don’t know how to obtain a mortgage for it? Don’t worry! In this blog, we will give you the step-by-step guide on how to get a mortgage for an auction property. We’ll cover everything from understanding what a mortgage entails, comparing different types of mortgages, and tips on getting pre-approved for a loan. Read on to find out more about securing your dream property with a mortgage!


If you’re considering bidding on a property at auction, you’ll need to obtain a mortgage in order to finance the purchase. While this may seem like a daunting task, with careful planning and preparation it is possible to obtain financing for an auction property. 


What to Know Before Applying for a Mortgage

If you’re planning to buy a property at auction, there are a few things you need to know before applying for a mortgage. Here’s what you should keep in mind:

  • Make sure you have your finances in order. This means getting pre-approved for a mortgage and having a good idea of how much you can afford to spend.
  • Do your research. Once you’ve found a few potential properties, do your research on each one. 
  • Be prepared to move quickly. If you’re the winning bidder on a property, you’ll need to be prepared to move quickly
  • Know what you’re getting into. Buying a property at auction can be a great way to get a good deal, but it’s also important to know what you’re getting into. 

 

Getting Preapproved for a Mortgage

If you’re planning on bidding on a property at auction, it’s important to get preapproved for a mortgage. This will give you a clear idea of how much money you can borrow and what your monthly payments will be. To get preapproved, you’ll need to provide some financial information to your lender, including your income, debts, and assets. You’ll also need to have a good credit score. Once you’ve been preapproved, you’ll be able to bid on properties with confidence knowing that you can afford the monthly payments.


Closing the Deal and Financing the Purchase

When you find a property at auction that you want to purchase, there are a few key things to do in order to close the deal and finance the purchase. First, it’s important to get pre-approved for a mortgage so that you know how much financing you have available to you. This will also help you to place a more informed bid on the property. Once you have won the auction, you will need to sign a contract and put down a deposit, which is typically 10% of the purchase price. The balance of the purchase price will need to be paid within a certain time frame, which is typically 30 days. If you are unable to pay the full amount within this time frame, you may lose your deposit and will not be able to purchase the property.


Once you have signed the contract and put down your deposit, it’s time to apply for your mortgage. You will need to provide your lender with all of the necessary documentation, including proof of income, employment history, and asset statements. Your lender will then review your application and determine whether or not you qualify for a mortgage. If everything goes smoothly, you should have your mortgage approval within a few weeks. Once your mortgage is approved, all that’s left to do is close on the loan and move into your new home!


Conclusion

Getting a mortgage for an auction property can be daunting, but it doesn’t have to be. By following the tips outlined in the blog, you should now have all of the information that you need to get started on the journey. Do your research and take advantage of resources like online calculators or mortgage brokers who can help make sure that you find the right loan for your needs.