The difference between Commercial and Buy to Let finance

Commercial Finance is...

Commercial finance covers a range of loans used for business purposes. Where property is concerned, a commercial mortgage will be the most appropriate type of loan, as this product is designed for people wishing to purchase commercial premises, expand their existing premises, invest in commercial property or develop a property. Most commercial mortgages have a term of 15 years or more and are given for substantial amounts, from £15,000 up to around £500,000. The property is the asset used to secure the loan – just the same as a domestic mortgage - and the lender retains a legal claim over the property until repayment of the loan is complete.

...and what is Buy to Let Finance?

Buy to let finance is designed for investors wanting to purchase a property and let it out to tenants. The owner can benefit from any increases in property value, while rental income can be used to meet the loan (mortgage) repayments. In recent years there has been a huge increase in the number of people buying to let – in 1998, there were 28,700 buy to let mortgages while the 2005 figure was 701,900. This increase has partly contributing to an upsurge in house prices. For guidance on what to do if you're thinking about buy to let, see Are you considering a buy to let property?.

Finance providers

A number of different financial providers exist, offering both commercial and buy to let finance. The most appropriate provider for you will depend on your circumstances. Here's an idea of what's out there:

Banks and Building Societies

Around 4 in 10 of all UK mortgages are arranged directly with a high street bank or building society. It's an easy option and many consumers feel they can trust a financial provider with which they have already established a relationship. In the case of commercial finance this can be helpful – if you already have a business account with a bank/building society, your account manager will know your reliability, turnover and other facts about your business. Unfortunately, lenders are aware that customers believe their existing financial provider to be the best source of commercial or buy to let finance and will accordingly reduce the competitiveness of their products. Don't feel you are tied to the commercial mortgage "packages" your bank/building society offers. The UK is home to around 150 mortgage providers, each in competition for your custom. Most providers offer a range of products, giving well over a thousand different mortgage options – the likelihood of your existing provider offering the one best suited to your needs is very low indeed – so shop around. A few mortgage providers allow you to combine your finances in one account – mortgage, loans, savings and credit cards. Where commercial finance is concerned, this is unlikely to be the most cost effective way of managing your money, so avoid being lured by such products..

Specialist providers

If you have previously had adverse credit (e.g. loan/credit card arrears, CCJs, repossessions) you can apply to an Adverse Mortgage Lender for a buy to let mortgage. Expect deals to be less competitive depending on how poor your credit history is. To get an idea of what is available, visit Decision Finance to compare commercial mortgage quotes on-line, and/or to be put in touch with potential mortgage providers. Money Supermarket is another on-line comparison site and is independent and therefore impartial.

Brokers or mortgage intermediaries

In the past, finance was usually funded by the major high street banks, but there is now a wide - and ever-growing - range of financiers. Greater competition should mean better value for the consumer but in practice it can make the marketplace a little confusing. Currently approximately 14% of commercial mortgage loans are arranged by a broker, the figure is low because most borrow directly from a bank with which they have an existing relationship.