Commercial mortgages - anyone know anything about them?

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soloequestrian

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There's a nice farm for sale near us, so have just been investigating commercial mortgages. Apparantly you have to have MORE of a deposit for one than for a residential mortgage, even though the mortgage will effectively be providing it's own income. How does that work?!?
 
Commercial mortgages / loans are considered higher risk by lenders so a greater LTV is wanted and a higher interest rate is charged.

It maybe cos people will work very hard to ensure payments are maintained to keep a roof over their head but could easier walk away from a business.

A business income to pay back the loan is also more variable and not always deemed as reliant as a permanent fulltime job ( although in the current climate thats debatable ).

Does a farm make money ? Not sure I'd take on such a venture when you hear from existing farmers how hard it is to make living. But at least it would have books a lender can check for income. Turning a farm into another venture ie. holiday chalets or something else from scratch would be harder to prove its viable for the lender.

Still do your homework, get as much info as you can to base a decision on.

Good luck.
 
Hi there
You've answered your own question - you need a commercial mortgage if the property and land provide the income to pay that mortgage, therefore the risk is greater to the lender as you are effectively self employed and a new business. You are more of a risk to lenders than Jo Bloggs who has worked for an engineering company for 10 years and his home is not providing his income. Is a commercial mortgage the only way of paying for this property? Does it have an agricultural tie?
 
look at agricultural mortgages. try AMC, or FAF(part of natwest) rates are usually quite good BUT you have to fit their lending criteria. whilst money is generally cheap to borrow at the moment it is very difficult to secure a loan or mortgage. you will need a good deposit for LTV, and if a partner/husband/spouse has a good income in addition to the farm it might be possible. you would also need a very good business plan. please be aware that farms have many hidden costs .. fertilizer, groundwork,fencing, maintenance, spraying, hedgecutting etc to keep it looking good thus being able to generate an income. machinery is also a huge investment and is necessary.
 
Commercial mortgage - I have one, or rather an agricultural one, surprisingly, you don't need to be farming to get one, just need a ''rural'' enterprise.
AMC is tricky to get money from and you normally need 35-40% deposit, but their rates are good and once they have given you the money and you pay your repayments in time, they leave you in peace.
Yorkshire/Clydesdale Bank is incredibly keen to give away money at the moment, especially for rural commercial, they require 25-30% depending on business plan.
You can take a long term mortgage, ours is 30years, it's also easier to negotiate interest only period, which helps with getting the business going.
There is also the upside of having people with decision making power there in front of you, none of this fill in a form and computer answers nonsense.
 
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