Buy to Let Commercial Mortgages
In the not so distant past the term "buy to let commercial mortgage"
would have been synonymous with "residential commercial mortgage".
This is because many lenders and brokers regarded buy to let mortgages
as commercial propositions.
Many property investors now consider a good mix of residential and
commercial property to be a requirement of a well managed portfolio.
This change in demand has forced the market to adapt, buy to let
commercial mortgages are now one of the fastest areas of commercial
Taking a look at the whole market of commercial investment property,
the main types of buy to let commercial mortgage products can be
defined generally under the headings 'blue chip', 'premium',
'secondary' and 'speculative'.
The highest quality of investment property would be the "blue chip"
investment. These properties will have very good quality tenants on a
long lease, as well as occupying the best location. Because of the
stability of the tenant these properties become very attractive to the
institutional investors, resulting in slightly inflated values. These
higher values can put pressure on the buy to let commercial mortgage
by reducing yields.
Premium investments would typically be very similar to blue chips,
with perhaps the exception of the quality of the tenant. Instead of a
well established business, such as a national chain or franchise, the
tenant would still expected to be of high standing. Because the values
of these properties are more realistic they can offer more attractive
rental yields, resulting in more interest from smaller investors.
When considering 'Premium' buy to let commercial mortgages lenders
begin to become much more focused on the experience and financial
standing of the investor. Questions will be asked about can the
borrowing costs still be paid in the event of the tenant defaulting?
this is particularly important and the valuer may well be asked to
comment on the likelihood or otherwise of finding good tenants quickly
and easily. Due to this potential for risk, a lender will also be
interested in verifying the stability and reliability of the tenant
Not surprisingly, speculative investments are the hardest to fund.
Very often the property is not pre-let, may be in need of repair or
refurbishment and may not even be in a good location. For these
reasons a lender will expect the borrower to have the means to support
the buy to let commercial mortgage from Day One - and evidence of
this will usually be required.
High street banks and building societies are most likely to favour the
blue chip or premium propositions, They usually reward solid
investment opportunities will very low interest rates and terms.
Commercial buy to let investors seeking funding for the secondary type
of properties have historically struggled to find funding at sensible
rates, the challenge was being able offset the renal income against
the higher interest rates from the banks. Competition in this sector
is bringing rates down though.
Speculative investments continue to be a specialist area, and
unsurprisingly there are still few lenders prepared to back these
deals unless they are confident of the borrowers ability.
Buy to let commercial mortgages are helping a new breed of property
entrepreneur seize opportunities. Obviously caution still needs to be
exercised when assessing the profitability of any commercial property
When searching for a buy to let commercial mortgage it is vital to talk to someone with experience in dealing
with the full range of commercial property types. Spectrum Business Finance have been arranging commercial finance for over 5 years and have the experience to help in almost all circumstances.