Commercial Mortgage Fees: The Five To Watch Out For
Taking on a commercial mortgage is a bid decision for many small firms, in fact it could be said it is a rite of passage for many companies as they expand from small business status to something 'better.' That being said, it is still a decision to be well thought out and not taken lightly at all.
For starters, expect the commercial mortgage to vacuum up a large proportion of your capital in the short term, (a 25% deposit will needed at minimum) and that will only be the beginning of a very long list f charges coming your way. Below we have compiled a quick list of the core expenses you can expect to pay with the buying and selling process of a commercial mortgage.
Booking Fees, aka Arrangement Fees: There is no escaping this one as it is an industry standard, all commercial lenders, be they banks, building societies or A.N Other will charge them. Though just to make things more difficult, there is no set rate and it will vary lender to lender, usually around 0.5% to 1.5% of the total amount the mortgage is for. It is worth asking if this fee can be added to the mortgage itself and not paid up front, some lenders will be willing to allow this, if you do not ask, you do not get!
The Valuation Fee: The first stage of the buying process will see the need for a valuation from yourself and the lender to make sure the property is worth the price and make sure the mortgage is set at the right level also. It will fall to you to pay for the cost of the valuation though again there is a chance it can served, depending on the purchase price and value in the first place.
Do not discount the need for a thorough structural survey by a conveyor, wither you or the lender could demand this to ease any fears of what the valuation brought up, especially if it is an older building. Obviously this will send the costs of the valuation fee skywards and to be 110% sure you might need/want to get two surveys conducted by separate conveyors.
The Professional and Legal Fees: Next comes everyone's set of favourite people to make the process more complicated, the lawyers and solicitors. Legal contracts need to be drawn up and need checking so there are no loopholes or grey areas. This may also cover the setting up of insurance policies and site surveys and reports, depending on the type of property and transaction you are going setting up.
Early Repayment Charges: Lenders like to discourage early repayments for the simple reason they lose out on thousands of pounds in interest payments from an early completion of a mortgage. When sorting out the commercial mortgage contracts find out about these early repayment charges, normally you will be allowed to overpay by a certain (small) percentage, but anything over that will incur a charge that might not make it worthwhile.
Broker Fees: If you approached and hired the services of an independent mortgage broker, for advice and/or to find and set up a commercial mortgage then you will have to pay their fees for services rendered.
Again, it is worth checking with your broker whether they expect payment from you upon completion in a lump sum or they might take a commission fee directly from the lender. The fees can range because of a variety of factors, so this is something you will need to discuss to get a ballpark figure, though you can expect the fee to be anywhere from GBP300 to 1% of the mortgage borrowed, a very broad spectrum I think you will agree.
It is not just the deposit you have to think about when it comes to a commercial mortgage, if that is all you have planned and budgeted for you can expect the cash pot to decrease as the fees drain a percentage of that away. So plan wisely and plan thoroughly with a budget that can cover the deposit and the fees that come with a commercial mortgage.
About the Author:
Howard O'Gollegos writes for Just Commercial Mortgages the UK's No1 site for the latest commercial mortgage rates and commercial property finance news.
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