Posted on: 23 May 2016

Buying can work well for more mature and established businesses and gives more freedom in terms of making adaptations to properties.

Some of the advantages and disadvantages of buying business premises

Advantages

Disadvantages

You are not subject to any rent reviews. Your business mortgage repayment is likely to cost around the same as rent

Buying requires a deposit, the cash set aside for a deposit could benefit the business in other ways

If the value of your property rises, you will benefit in the long-term if you decide to sell

There is less than half of commercial property for sale than there is to rent in the UK [1] so finding  premises to meet your requirements may be more difficult

Making changes to your property can be much easier. You may still require planning permission but there is no landlord approval needed

If you have too much or too little space, there is less flexibility to adapt as selling can be time consuming

You have the benefit of long-term stability as you have ultimate ownership of the building

Ownership of a property means that you are responsible for all management and maintenance. Repairs and updates may have a substantial monetary impact on the business

Commercial Mortgages

A commercial mortgage is the most common form of finance for the purchase of a building. Before you begin the process of searching for a commercial mortgage provider, you should have relevant documentation and business numbers prepared. Your lender will likely want to see:

  1. Audited accounts for the last two years

  2. A profit and loss forecast/ growth projections for the next few years

  3. Current business performance

  4. The personal details of the key stakeholders in the business for credit-checking

  5. Asset and liability statements for each applicant

  6. A business plan detailing how the property will contribute to your cash flow and how you plan on repaying the loan

  7. The credit status of the business

  8. Details of any personal investments involved

    Note: Different mortgage lenders may require different information so check with them to find out exactly what they need to see ahead of a mortgage application.   

    In costing out mortgages, you should consider:

  • Booking fee
    This is also known as an Application Fee, this is the charge to ‘book’ or ‘reserve’ your mortgage funds whilst your application goes through.
  • Arrangement fees
    This is sometimes called a Completion Fee, it is the fee that your lender charges to set up your mortgage and is usually charged between 0.5% and 1.5% of the loan value.
  • Valuation Fees & Valuation Administrators Fee
    Cost of the lender undertaking a basic survey on the property to establish value, this is also known as a Mortgage Valuation.
  • Legal Fees
    Including legal documentation and surveys
  • Redemption Penalties
    A fee payable to the lender if you pay off your mortgage before your agreed term

Who can help?  If you are considering buying, speak early on to your bank to see if they are prepared to lend you the money that you need. Typically banks will lend around 75% of the purchase price (subject to valuation) although this may vary depending on individual circumstances.

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[1]  PIA Property Data Report 2015 Final – Royal Institution of Chartered Surveyors  


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