Refinancing Commercial Property Explained

If your original commercial mortgage term is ending, you may be wondering what happens next.

Here, we examine how commercial remortgages work and whether it’s possible to release equity when refinancing.

How do commercial remortgages work?

Commercial remortgages work in similar ways to residential remortgages. When your original mortgage term has ended, you can negotiate a new deal with your current mortgage provider or apply with a new lender. You may want to move lenders to secure a better rate or repayment plan or fix back in with your current provider to avoid reverting to their standard variable rate, usually higher than you were paying before.

Commercial mortgages are initially agreed on a bespoke, case-by-case basis, and remortgages will be considered in the same way. However, a mortgage provider will generally run calculations and affordability assessments based on earnings before interest, tax, depreciation, and amortisation (EBITDA).

EBITDA helps mortgage providers determine whether you or your company will make enough to cover repayments. For example, if you want to remortgage an apartment building, your potential provider will want to ensure that any rental income meets your payment deadlines.

If your net profit from your business is not enough to cover the repayments, some specialist providers may let you use other income as part of your application. As a result, you may be able to borrow more when you remortgage.

Other criteria you’ll need to meet

In addition to net profit, there are other generic criteria that mortgage providers will investigate – particularly if you are moving providers:

• Business type: Some providers won’t consider specific business types or industries. That may limit the number of providers available to you. You may not, then, have as wide a choice of rates or terms which other industries may enjoy.
• Trading history: If you have built up a number of years trading since you took your commercial mortgage out, and enjoyed a strong track record, you may now be eligible for more favourable rates.
• Deposit, equity and LTV: You’ll already have a deposit when remortgaging a commercial premises, having built up equity in the property. As a result, your loan-to-value ratio may have improved since you first took out your mortgage. You may now be eligible for better rates with a new product or new mortgage provider.
• Credit History: Your remortgage negotiations won’t immediately be impeded by past instances of bad credit. While providers will often prefer candidates to have a clean credit history, many look at what and when the issue was to determine how risky lending to you could be.

How to remortgage a commercial property

Your first step should be to find a broker who specialises in commercial remortgages. Make an enquiry with us, and we will match you with an advisor who meets your needs for free.

Your commercial mortgage broker will guide you through the following steps:

• Calculating your LTV
• Downloading your credit reports/your business’ credit reports
• Finding the right commercial mortgage lenders and securing the best deal

Can you release equity when you refinance?

Yes, you can, though commercial mortgage lenders like to see a minimum of 25% equity left in a property when remortgaging.

Releasing equity is one of the most common reasons that businesses remortgage their properties. If you have built up enough equity in your property, you can take that money out when remortgaging to use elsewhere. You may want to invest the money in another property or pay off debts to improve your business’s debt obligations.

You can also borrow against any increase in the value of the commercial property. Doing so means that you realise the gain, borrowing against the higher property price. Again, you can use that cash to invest elsewhere.

What your new repayments will look like

Our commercial remortgage calculator will give you an idea as to what your new payments could be.

Who are the best lenders?

There are many specialist providers who will all offer you different terms, payment structures and conditions for a commercial mortgage. For instance, currently The Mortgage Lender, Precise Mortgages or Shawbrook Bank are all examples of lenders who consider commercial mortgage and remortgage applications. The best lender for you will depend on your specific financial situation.

However, whether they are suitable for you or whether you are eligible for their products will depend on your needs and their requirements.

Speak to a commercial remortgage specialist

As all commercial mortgages and remortgages are considered on a case-by-case basis, it can be hard to find a provider offering you the best rates on your own. Yet, getting the best deal possible can materially improve your business’s cash flow and profitability. Lowering your outgoings will mean more money can be invested back into your business.

Using a broker can be invaluable as they have in-depth knowledge of the commercial mortgage and remortgage market. With your remortgage, they’ll know how your circumstances have changed since you first took out the loan. They’ll then determine how those changes have affected your financial situation, putting you in line for specific deals with different lenders.

One of the specialists we work with can help you easily identify and apply for one of those deals. Call us today on 0330 818 7026 or make an enquiry so we can connect you with the best commercial mortgage broker for you.