Frequently asked Questions
Please find below answers to some of the questions that we are regularly asked. You will have many other questions to ask, so please do get in touch.
Should I check my credit rating before applying?
When applying for credit personally or through your business a credit search will be carried out by any proposed lender. There are several Credit Reference Agencies including Equifax, Experian and CheckMyFile. CheckMyFile provides a detailed online credit report from Equifax, Experian, TransUnion and Crediva. You can get a 30 day free trial with CheckMyFile if you have never checked your credit score with them before.
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As a Commercial Finance Broker what support will you give me?
The support that Wattsford Commercial Finance gives is tailored around you. Not only do we source the very best commercial finance for you, our brokers will support you through the whole application process. For example some lenders may require supporting information such as a business plan as part of their lending decision which we will help you to prepare. Additionally lenders may wish to meet with you where we will attend the meeting with you.
What is the maximum Loan To Value (LTV) achievable on a Commercial Mortgage?
There are no hard and fast rules and each case will be assessed on merit. In general terms we advise our clients to be prepared to deposit circa 25% to 30% of the property or business value. For example a LTV in the range 70-75%. Mortgages for pubs will generally be limited to 60% to 65% LTV due to the higher risks associated with this sector of the market. Sitting tenants can often secure a higher advance.
What level of support will I get for a Property Development Loan?
With a Property Development loan much depends on the type of project being undertaken, the overall borrowing requirement and the anticipated profit margin that project will generate. In addition the proven experience of the developer, their financial standing and / or the proposed contractor will also count heavily towards the underwriting decision.
Can I borrow against the ‘goodwill’ of a business and equipment, fixtures and fittings?
In general terms yes. If you are buying a business trading from freehold premises we will obtain a professional report to verify the overall value of the business goodwill etc which is sometimes referred to as ‘market value’ or MV1. Subject to satisfactory confirmation it is usually possible to secure an advance against the overall business valuation. Where the purchase of a trading business also includes machinery, vehicles equipment, stock etc. it is generally more appropriate to structure a separate loan to acquire these assets on a short- term lease or stock finance arrangement.
What does the term ‘Mortgage Affordability’ mean?
When an underwriter is assessing a mortgage application the key criteria is the applicant’s ability to afford the loan repayments (this is sometimes also referred to as a ‘stress test’). Many mortgages will offer an ‘easy start’ period on interest only terms but most mortgage lenders wish to see both capital and interest repaid thereafter. In assessing your ability to repay the loan the underwriter will look at your business income / profits via any accounts held and any other sources of confirmed income that you have. In situations where you are renting business premises and wish to purchase a freehold property (perhaps as a sitting tenant) then the rent you pay will be assessed as an ‘add back’ when looking at the overall position.
What charges are associated with setting up a Commercial or Development Mortgage?
The applicant will have no fees to pay to secure an ‘Agreement in Principle’ (AIP) offer from the mortgage provider – we offer this service free of charge. Once the AIP is accepted by the client it will be necessary to schedule and pay for any valuation report(s) needed by the underwriter. The cost of which will vary depending on the size and scope of the project but on commercial schemes we normally advise to budget £2 per £1,000 of property value. After the valuation reports confirm a positive and viable loan proposition the lender will issue the formal offer subject to legal due diligence. At which point a non – refundable commitment fee may be payable by the client to cover underwriting costs – this is generally deducted from the loan set up fees. Some lenders will require their own legal costs to be covered by the client though it may be possible for the clients / lenders solicitor to represent both parties. In addition to the interest charged on the mortgage or development loan there will generally be a set up fee of between 1% and 3% of the loan.
What does the term ERC mean?
ERC stands for ‘ Early Repayment Charges’ – generally applied on longer term Commercial Mortgages ( to protect the lenders anticipated margin on the deployment of the funds) if the loan is redeemed in the early years. Many lenders will charge ERC’s up to a three or five year point in the loan usually on a reducing scale but these can be as high as 5% of the mortgage amount if a facility is repaid in year 1.
What are property 'Use Classes'?
The Town and Country Planning (Use Classes) Order 1987 (as amended) puts uses of land and buildings into various categories known as ‘Use Classes’ which are detailed on the Planning Portal.