Commercial mortgages
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Owning your business premises may be a great advantage, but sorting out a commercial mortgage can be a challenge to the uninitiated. Georgina Harris finds out more
While leasing and renting offer flexibility, the main benefit of buying your premises is that the property becomes an asset that adds value to your business, particularly if property prices continue their upward surge.
Now is the time to buy, argues Chris Kirk, head of commercial mortgages at HSBC: "The continuing low interest rates makes the costs of ownership more affordable and potentially lower than prevailing rentals." There can be tax advantages to buying with a commercial mortgage. Mortgage repayments of the interest part of the loan (not capital repayments) may be offset against tax. But before you think about buying, check with your accountant, because specific business-property types are treated differently for tax purposes. Choosing and applying The most common way to buy premises is with a commercial mortgage. In principle, they work in the same way as residential mortgages, with either monthly or quarterly loan repayments. There are three main types: capital repayment, interest-only or a mixture of both. Interest rates can either be fixed, variable or linked to the London Inter-Bank Offered Rate (LIBOR). Lenders may want to see your books for the past three to four years, cashflow projections, a detailed CV and an updated business plan. You will need a higher deposit than for buying a home, so you should be sure you can afford to tie up a large sum long term. Deposits start at ten per cent but are likely to be around 20 to 30 per cent. Interest rates are also usually higher. Expect to pay 1.5 to 3 per cent over base rate (currently 4.5 per cent). Negotiate for results Unlike residential mortgages which come off the shelf, rates and deposits for commercial mortgages are generally negotiable. Kirk continues: "Commercial mortgages are tailor-made for the borrower, meaning we can structure the borrowing around the business premises, potentially for terms of up to 30 years, dependent upon the property." Bargaining will get you results. Shop around and challenge any offers you get. As well as the lender's levels of service, look for the lowest interest rate, arrangement fee, valuation fee and check redemption penalties. Don't forget that you will also have to pay legal and professional fees when the purchase is completed. Pension boost for buyers Purchasing commercial property through a pension scheme is becoming more popular. From 6 April 2006, Self-Invested Personal Pension funds (SIPPs) can borrow up to 50 per cent of the net value of the fund. The main benefit of purchasing your property via a SIPP is tax-related. You will not have to pay capital gains tax on any increase in premises value. Seek the advice of a tax specialist before deciding on which route to follow.
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