Lawyers are advising clients about real estate law.
Nigel Smith

Nigel Smith

Differences in Commercial and Residential Property Purchase

Purchasing a property is a concept in which only homeowners and hopeful buyers will be familiar with. With house prices rising and with a younger generation struggling to take their first steps on to the property ladder, the buying process is becoming altogether more stressful, whether purchasing a commercial property or residential. However, these worries and concerns should not be carried over into the commercial world.

The method of purchasing a commercial property does share certain similarities with the way in which a house is bought, but there are a few notable differences.

Commercial and Domestic Property Purchase

One of the most significant differences is in the earliest stages of buying. The application for purchasing a commercial property is remarkably more complex than the application for a domestic site. Particularly for mortgages, a business wishing to secure an estate must first prove that their company is performing well enough to ensure a smooth repayment schedule. Mortgage rates are also dependant on a number of variables, such as the size and complexity of the project, the location of the site and the overall risk of the investment.

Unsurprisingly, the information required for a mortgage application is significantly greater than that of a residential mortgage, hence why each application process is different. Commercial loans do boast a lower loan to value rate in comparison to domestic sites, however. Typically, a commercial rate will sit around the 65-70 per cent mark, whereas a homeowner can expect their rates to rest in the 90-95 per cent area.

Commercial Property Investors and VAT

Although buyers of commercial and residential properties will both have to pay stamp duty land tax, commercial investors have the added stress of paying VAT on their properties. This is the common cause for failure in a bid for properties as, depending on the price of the property, the rates can stretch to a cost which is beyond the investor. Unsecured loans can be taken out from an independent funding company to help stump up the cash to make the move.

This comes as a result of the differences in regulation between the two types of land. The process of buying a home is regulated by the Financial Conduct Authority to ensure the process is legal and above board. On a business level, the motion of securing a new property is seen as completely commercial and therefore, the use of independent funding companies becomes a popular and viable option.

At face value, the similarities between purchasing a commercial property and residential properties is apparent. However, securing a domestic site offers a number of constraints which escape the process of buying a commercial plot. If your business has grown to a size where it needs to expand, banish the worries of buying a home from your mind and seek expert advice with a commercial focus and start your application process.

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