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Do I Need a Deposit for a Commercial Mortgage?

Contributed by Craig Upton
October 5, 2021

The prospect of being asked to come up with a huge down payment for a commercial mortgage can be off-putting. If not, the single biggest make-or-break factor when assessing affordability.

If you simply do not have the means to put together a huge deposit, you could be counted out of the running.

This is not necessarily the case with all commercial mortgages or lenders; while a sizeable deposit is a standard feature with most commercial loans, down payments are not always necessary.

What Kind of Deposit Applies to a Commercial Mortgage? A deposit needs to be paid to qualify for commercial finance. The amount can vary significantly from one loan and lender to the next; typically falling between 20% and 40%. Where a deposit needs to be paid in cash, it can prove a major obstacle for many borrowers.

The size of the deposit you are expected to pay will be determined by both the type of loan you apply for and the assets you provide as security. For example, if the mortgage is secured against a property with a value that significantly exceeds that of the loan, a deposit may not be necessary at all.

Some specialist loans like bridging finance are issued purely on the basis of the value of the security, not the capacity of the applicant to provide a deposit. If putting together a deposit is an issue, considering the alternatives to a conventional commercial mortgage is advisable.

If I Can Pay a Deposit, Should I?

Where you have the means at your disposal to pay a higher deposit, doing so can be advantageous. Even if it means handing over a sizeable chunk of your on-hand capital, you could find yourself better off financially long-term.

Paying a higher deposit paves the way for lower rates of interest and reduced overall borrowing costs. It also means borrowing less money overall, which could lead to significant savings over the life of the loan.

Qualifying for a commercial mortgage can also be simplified by increasing the size of the down payment. If you have a history of bankruptcy, insolvency or poor credit, agreeing to pay a larger deposit could get you over the line with your preferred lender.

What Are the Options Available for Funding a Deposit?

If you cannot pull the funds together to cover your mortgage deposit in-house, there are specialist financial products available that can help. For example, if you were offered a commercial mortgage with an LTV of 75%, a bridging loan could be taken out to cover the remaining 25% and enable the purchase to go ahead.

After which, the property could be renovated, sold and the proceeds used to repay the bridging loan at a low monthly rate of interest.

Independent Broker Support...

A commercial mortgage can be used for a wide variety of purposes and can be a surprisingly flexible facility.

If you have any concerns regarding your capacity to put together the deposit you need, consult with an experienced commercial finance broker like UK Property Finance to discuss the alternative options available.


Tags: United Kingdom (UK) | Real Estate | Banking | Property Investment | real-estate investment | Banks/Financial | United Kingdom



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