The Advantages and Disadvantages of a Commercial Mortgage

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Buying commercial premises is often a prudent investment and having your own property can be a major business asset. However, while there can be advantages of doing so there can also be some significant disadvantages too.

Why a commercial mortgage?

A commercial mortgage for property can be used to buy your business premises and the repayments can be structured either with fixed or variable interest rate payments. However, this type of mortgage can be used for more than just buying your business a new home. It can also:

  • Develop existing property
  • Develop new property
  • Extend current premises
  • Residential developments and projects
  • Commercial developments and projects
  • Buy land

Advantages of Commercial Mortgages

Owning a commercial property has its benefits including:

Lower interest rates 

Commercial property mortgages typically have lower interest rates than other unsecured borrowing. Choosing to have fixed monthly repayments means you can accurately use them in your business planning and forecasting, enabling you to structure the finance of your business with a bit more certainty.

Capital gains

Substantial capital gain can be made you when buy a commercial property. This can be a good way of realising capital growth over a long period as (long term) property prices always rise.

Renting potential

If you have any additional space in or on the property you own you can monetise it by renting out the surplus space to generate additional income.

Financial planning

Commercial property mortgage payment plans usually extend for a number of years which allows a business to focus on other important business matters such as sales, monitoring overheads and training staff.

No ’empty money’ rent payments

Your mortgage payments will probably not cost you any more, per month, than what your equivalent rent would be. But as you own the building, your equity in the property will continue to grow with each mortgage payment, providing you with a more solid financial foundation.

Capital gains

Long-term property prices rise and buying your own premises is a form of investment – so long as the area you are buying in is right. Business property prices can often rise quickly in a short space of time, making your investment a shrewd one.

Ending a mortgage

If you find yourself unable to pay your mortgage, or you need to move to bigger premises, or if you decide to close your business, you are still left with plenty of options if your mortgage is commercial. While getting out of a long-term leasing arrangement can often be difficult, a mortgage can still be covered if you decide to sell the premises or if you decide to rent it out and maintain the asset.


Disadvantages of a Commercial Mortgages

Of course there are some disadvantages to having this type of mortgage too including:

Raising a deposit

The deposit you need could be substantial. Not only can a hefty deposit be difficult to raise, this is cash that may be better used in other parts of your organisation.

Property maintenance

All maintenance, security and the general upkeep of your premises would need to be paid for and undertaken by you, there will be no going back to the landlord to complain that the pipes have burst again, those pipes are now your responsibility.

Falling property prices

There are always fluctuations in property prices and sometimes these short term downturns can affect the value of your property which can result in reduced capital, affecting your finances and future borrowing capability.

Your interest rate

If you happen to have a variable rate mortgage then any rise in interest rates will result in your monthly repayments becoming more expensive. You will be subject to the base rate and the decisions of the Bank of England.

Your decision on whether to get a commercial premises mortgage will be influenced by much more than the factors listed above. You can find out more about the steps to getting a commercial premisis mortgage here.

If you are interested in finding out more about buying your own business premises, property or land and how a commercial mortgage can help you then get in touch with us.