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Second Charge Mortgages on Commercial Property: What You Need to Know

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If you’re considering a second charge mortgage on a commercial property, it’s important to understand the pros and cons of this financing option. We provide guidance on the considerations to keep in mind and the potential benefits and drawbacks of commercial second charge mortgages.

With this information, you’ll be able to make an informed decision about whether a second charge mortgage is the right choice for your business. Keep reading to discover what our brokers has to say about this financing option.

Key Takeaways

  • Commercial second charge mortgages come with both advantages and disadvantages, so it’s important to carefully consider your options before making a decision.
  • Based on your yearly income, you may be able to borrow a certain amount with a second charge mortgage.
  • If you’re interested in exploring your options for a second charge mortgage on a commercial property, we can provide guidance and support.

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Second Charge Mortgages on Commercial Property

How do Commercial Property Second Charge Mortgages Work?

A commercial property second charge mortgage is a type of secured loan that allows businesses to borrow money using their commercial property as collateral. It is a second mortgage that is separate from the original mortgage but secured against the same property.

In the event of default or failure, the first mortgage provider has the first claim to the proceeds of property repossession, with the second charge mortgage provider next in line. The loan to value (LTV) ratio for a second charge mortgage is typically lower than that of a first charge mortgage, as the risk to the lender is higher.

Commercial second charge mortgages are only available to businesses with an existing mortgaged property. The lender will also need security, usually the property but sometimes in another form. The eligibility criteria and requirements for commercial property second charge mortgages may vary between lenders.

Pros of commercial property second charge mortgages include the ability to borrow more money than unsecured loans, and lower interest rates than unsecured loans. Cons include the risk of repossession of the property in the event of default.

If you are considering a commercial property second charge mortgage, it is important to carefully consider the risks and benefits and to consult with a commercial lender or mortgage broker to determine if it is the right option for your business.

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Frequently Asked Questions

What are the eligibility requirements for obtaining a second charge mortgage on a commercial property?

To obtain a second charge mortgage on a commercial property, you must meet the lender’s eligibility criteria. Generally, you must have a good credit score, a stable income, and equity in the property. The lender will also consider the value of the property, your business plan, and your ability to repay the loan.

What is the maximum amount that can be borrowed through a second charge mortgage on a commercial property?

The maximum amount that can be borrowed through a second charge mortgage on a commercial property depends on various factors such as the value of the property, the lender’s criteria, and your ability to repay the loan. Generally, the maximum amount that can be borrowed is up to 75% of the property’s value.

How does a second charge mortgage on a commercial property differ from a first charge mortgage?

A second charge mortgage on a commercial property is a loan that is secured against the property, but it is subordinate to the first charge mortgage. This means that if the property is repossessed, the first charge mortgage lender will be paid first, and the second charge mortgage lender will be paid second. Second charge mortgages usually have higher interest rates than first charge mortgages to compensate for the increased risk.

What are the advantages and disadvantages of a second charge mortgage on a commercial property?

The advantages of a second charge mortgage on a commercial property include the ability to borrow a larger amount of money than with an unsecured loan, lower interest rates than unsecured loans, and the ability to spread the repayments over a longer period. The disadvantages include the risk of losing the property if you cannot keep up with the repayments, higher interest rates than first charge mortgages, and the additional fees associated with setting up the loan.

What are the typical interest rates associated with a second charge mortgage on a commercial property?

The interest rates associated with a second charge mortgage on a commercial property are usually higher than those of a first charge mortgage, and they are typically between 3.5% and 4% above the base rate. The interest rate will depend on various factors such as the value of the property, your credit score, and the lender’s criteria.

Can a second charge mortgage on a commercial property be used for business purposes or only for personal use?

A second charge mortgage on a commercial property can be used for both personal and business purposes. The loan can be used to fund business expansion, purchase new equipment, or pay off existing debts. However, the lender may want to see a solid business plan and evidence of your ability to repay the loan before approving the application.

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This site is an information only site. All of our articles are written by authorised mortgage brokers for the only aim of providing great, useful, mortgage and loan related information. We intent to offer the best possible suggestions and guides however can’t always guarantee to be perfect, please use the information at your own risk. We can’t accept responsibility if things go wrong. Please contact us via our contact page if you see anything that requires changing and we will do so as soon as possible.

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** The content provided in this page is correct at the time of writing. Mortgage and loan lender’s qualifying criteria and rules change frequently so speak to an adviser to confirm the most up to date rules and criteria. The content on the website is not specific advice to each reader, and does not constitute financial recommendations.