With the Bank of England keeping a close eye on interest rates, is now the right time to refinance your commercial property or perhaps even, offer someone a loan?

It may be that a current commercial mortgage is coming to an end, that your property has increased in value and there is equity to be released, or perhaps it will help with business cashflow.

Whilst lawyers and legal representatives are not financial advisors so usually cannot comment on the actual rates and products themselves, we at Berwins are always eager to help tackle the legal specialism one may need to navigate the complex arena of commercial property refinancing.

So, with that in mind, here are some pointers as to what to consider.

How does refinancing work?

Refinancing is a way of using a commercial mortgage to either secure a first charge against a property to release cash, or using one commercial mortgage to pay off another that may already be secured against the property to land better terms and interest rates. In respect to the property itself, one can refinance a commercial property if the legal title to the property is entirely or even partly owned depending on the circumstances.

Generally, there are two types of commercial mortgages: fixed interest rate, and variable interest rate.

Both types of rates can be beneficial for one’s business dependent on the business’ needs, so using a trusted financial advisor to get the steer needed for the best product and tax advice is essential in helping to find what type of rate is best for you.

In relation to where Berwins can help: in basic terms, once a finance deal has been secured with a lender, we would help review the refinance offer and associated terms and forms, conduct the necessary searches and due diligence checks as required to comply, and report to the relevant parties on findings and signing procedures along the way. Where we are instructed to act for a private lender, we may even be called upon to draft the appropriate legal documentation to structure the deal.

In relation to the searches (checks done in relation to the property being refinanced), such as local authority, environmental, drainage and water searches. Sometimes lenders may require a full set of searches before completing the charge to ensure the lending is protected, or as a minimum, legal indemnity insurance will be required which we would source as well where needed.

We would then help deal with registering the charge at the Land Registry against the commercial property to ensure it is correctly secured and noted on the legal title.

What are the benefits of refinancing for a property owner?   

There are several benefits to refinancing a commercial property (often known as remortgaging), and whilst we appreciate that rates are higher than those at the height of the pandemic, the most common benefits a refinance could lead to are better interest rates and terms for a business or property owner, saving money on repayments.

As we all wait to see what the Government and the Bank of England do next, below are some often overlooked reasons that re-financing a commercial property could bring: –

Capital gains advantages

From a property investment standpoint, refinancing has huge Capital Gains Tax advantages when compared to a property sale. The equity released from a commercial property is treated and considered as a loan which attracts nil CGT liability unlike gains from a property sale. 

Increased cashflow

A refinance helps with the business cashflow required to meet unexpected operational costs or capital-intensive projects and is a good vehicle for company and director loans. The benefit of increased cashflow can also mean releasing cash to use for another project, such as the purchase of a further property to be used as a new office or let out to a tenant to bring in additional rent.

Corporate restructuring

Refinancing can facilitate corporate restructuring between Operating and Holding companies, which can benefit the main company to allow for the changes needed to provide the company and associated subsidiaries the capital needed to thrive during these turbulent times.

These added reasons can be very beneficial to a business – depending on what your needs are, whether as the borrower or lender.

As we look to see what comes next from the Bank of England, what we can see from their database is that since September 2023 the interest rates have remained the same; a link to their website can be found here.

However, that is the rate at present and as we know, financial rates and terms of any mortgage are not set in stone. So, if you are looking to refinance or grant a lending hand to someone, we are here to work with you using our deep expertise to achieve the best outcome for you and your business.

DISCLAIMER: The information and opinions expressed in this article does not address individual requirements and is for informational purposes only. It does not constitute any form of legal advice and should not be relied on or treated as a substitute for specific advice relevant to your particular circumstances.