Commercial mortgages allow individuals and businesses to buy property such as offices, factories and warehouses. Here are our top ten advantages to taking out a commercial mortgage.
1. You own the property – By taking out a commercial mortgage to buy a property, you then take ownership of that property asset. Property prices typically rise over the long term in the UK, and so if you hold onto the property for a period of time you will be able to realize a capital gain when you sell it in the future.
2. Repayments are tax deductible – Interest payments on your commercial mortgage are an allowable expense for tax purposes. HM Revenue and Customs (HMRC) will allow you to claim the interest payments on a property loan as an expense when working out what tax you have to pay.
3. Stable payments – When you rent a commercial property, your rent is subject to regular rent reviews (normally conducted annually). At this time, your rent payments could increase significantly, making it hard for your business to budget. A commercial mortgage gives you more stable payment terms meaning it is easier to manage your outings.
4. Lower interest rate than other borrowing – Many companies take out commercial mortgages to consolidate other business debts that they may have. If you are paying high interest rates on an overdraft, bank loan or credit card it may be more sensible to take out a commercial loan to repay these unsecured borrowings.
5. Potential to generate income from sub-letting – When buying commercial premises, many companies buy property that is too large for their present needs. Whilst they can use the premises to expand in the future, it also allows potential for sub-letting the space in the short term in order to generate additional income to help repay the mortgage. Remember that you may need your mortgage lender’s permission to do this.
6. Easier cash flow – When you agree a commercial mortgage, the payment plan will normally extend for a number of years. This provides some certainty in terms of the payments allowing you to focus on profit and loss rather than worrying about a volatile cash flow.
7. You retain control – Instead of raising funds by selling a share in your business or in the property to an investor, you retain complete ownership. An investor would expect a percentage of any increase in the property value whilst a lender is only entitled to an interest return on its mortgage. You will retain all the benefits of ownership of an asset that has the potential to increase in value.
8. Allows you to retain your capital – When buying a commercial property, raising funds through a commercial mortgage means that you don’t have to use up all the capital that you have available. You can put down a deposit and borrow the rest from a lender, allowing you to put the remainder of your cash reserves to better use.
9. Control over the property – When you lease a property, you are restricted in a number of ways to what you can do with the property itself. You may need permission to change the layout, to redecorate or to change the usage of the property. When you take out a commercial mortgage, however, it allows you to own the property, meaning you can make changes to it without having to seek a landlord’s permission.
10. Save money – Another advantage of a commercial mortgage over renting a property is that your repayments will often be lower. Ignoring regular rent increases, you may actually pay significantly less on a monthly basis on a commercial mortgage than you would on rent payments.