Portfolio

Every portfolio case is shaped by three constraints at once: what the security supports, what the borrower can evidence, and how quickly funds are needed. Portfolio facilities trade individual flexibility for a single covenant set and one review cycle, which suits holders of several assets.

Structurally, the facility is secured on a first legal charge over commercial or semi-commercial property, written over terms of five to twenty-five years, on capital repayment or part-interest-only, with advances commonly between 60% and 75% of value, with owner-occupied cases reaching higher than investment cases. Lenders assess the exit before the entry: the facility is repaid from trading income or rental income over the term, or refinanced at maturity. That ordering explains why two applicants with identical income can receive materially different terms — the credit question is whether the repayment route survives a slower market, not whether the borrower looks creditworthy today.

Activity in this segment comes from private banks for higher-value cases, high street clearing banks, challenger and specialist commercial banks and debt funds and non-bank lenders. Each prices the same commercial mortgage case against its own funding cost and risk appetite, which is why the same portfolio case can attract offers several percentage points apart. The Financial Conduct Authority supervision shapes conduct standards and, where the borrowing is regulated, the advice and disclosure obligations that sit around the transaction.

Eligibility for portfolio is assessed on the asset first and the applicant second. Lenders test debt service cover, usually requiring net income of at least 125% of the loan payment, or interest cover of 145% on investment cases, then satisfy themselves that the facility is repaid from trading income or rental income over the term, or refinanced at maturity remains achievable under stressed assumptions. Trading history, sector, and the quality of the security all move the answer, and a marginal case is far more often declined on evidence gaps than on the underlying numbers.

A complete submission normally contains identification and proof of the deposit source, a business plan where trading is changing, two to three years of filed accounts and up-to-date management information. Where any of these are missing, underwriters price the uncertainty rather than ignore it, so incomplete packs tend to return higher rates or lower advances rather than an outright refusal. Preparing the pack before approaching lenders is the single most effective way to protect the terms available.

Adverse credit, short trading history, or an unusual asset does not automatically exclude an applicant. It moves the case towards building societies with commercial appetite and private banks for higher-value cases, where criteria are set case by case. The trade-off is cost: flexibility on criteria is almost always paid for in margin, fees, or a lower advance against value.

Pricing is built rather than quoted. The headline rate reflects a margin over the Bank of England base rate or SONIA, plus an arrangement fee typically between 1% and 2% of the facility, and the effective cost only becomes visible once arrangement fees, valuation and legal costs, and any exit or early-repayment charge are added to the same calculation. Comparing two offers on rate alone routinely selects the more expensive facility.

Three variables move the price materially: the advance requested against value, the strength of the facility is repaid from trading income or rental income over the term, or refinanced at maturity, and the time the lender is exposed. Reducing the advance is usually the most efficient lever, because it lowers loss-given-default for the lender and therefore the margin charged. Figures discussed at enquiry stage are indicative and subject to valuation and full underwriting.

Borrowers should also price the cost of delay. A straightforward case typically completes in six to twelve weeks, with valuation and legal work accounting for most of that period. Where a transaction has a fixed deadline, a slightly higher margin from a lender that can meet the date is frequently cheaper than a lower margin that misses it and forfeits a deposit or a negotiated purchase price.

Consider a borrower using portfolio where an existing facility reaches the end of its term and must be refinanced. The starting point is the security: an independent valuation establishes what the asset supports, and advances commonly between 60% and 75% of value, with owner-occupied cases reaching higher than investment cases sets the realistic ceiling on the facility. The gap between the ceiling and the funds required is the equity or additional security the borrower must contribute.

The facility is then sized against debt service cover, usually requiring net income of at least 125% of the loan payment, or interest cover of 145% on investment cases, and the term is set by the repayment route rather than by preference — the facility is repaid from trading income or rental income over the term, or refinanced at maturity. Costs are modelled across the full term, including arrangement and exit fees, so the comparison against alternatives is made on total cost rather than on headline rate.

This example is illustrative. It is not a quotation, a recommendation, or evidence of available terms; actual pricing depends on valuation, credit assessment, and the lender's appetite on the day. Its purpose is to show the order in which decisions are made, because borrowers who understand that sequence present far stronger applications.

Portfolio is most commonly used where a portfolio is consolidated onto a single facility with one covenant set, a trading business buys the premises it currently rents and an investor acquires a tenanted commercial unit for rental income. What these situations share is a mismatch between the timing of a cost and the timing of the funds that will meet it; the facility exists to bridge that mismatch at a known price rather than to fund an indefinite shortfall.

A second group of cases is structural rather than urgent: an existing facility reaches the end of its term and must be refinanced and a borrower releases equity from an owned property to fund expansion. Here the borrower is choosing how to hold an asset over time, and the analysis is closer to a capital-structure decision than a funding emergency. Term, covenant flexibility, and early-repayment terms matter more than speed.

The route is a poor fit where the repayment plan depends on an event outside the borrower's control, or where the underlying business needs additional working capital rather than secured borrowing. In those cases the honest answer is that portfolio would refinance a problem instead of resolving it.

The nearest alternatives are a bridging facility where the requirement is short-dated, an owner-occupier lease with a purchase option and asset finance where the need is equipment rather than property. Each solves a slightly different problem: some are cheaper but slower, others are faster but priced for short exposure, and a few avoid taking a charge over the asset altogether. The right comparison is total cost over the period the money is actually needed.

Where the requirement is short and the exit is certain, a short-dated facility usually wins on total cost even at a higher rate, because the interest is charged for months rather than years. Where the asset is held for the long term and the income is stable, the opposite is true and a term facility priced on a margin over the Bank of England base rate or SONIA, plus an arrangement fee typically between 1% and 2% of the facility is the cheaper way to hold the position.

A broker or adviser adds most value at this point rather than at application. Comparing challenger and specialist commercial banks, debt funds and non-bank lenders and building societies with commercial appetite on a like-for-like basis, including fees and exit terms, is the step that determines the cost of the transaction — the paperwork that follows is largely administrative.

What you will be asked for

• Two to three years of filed accounts
• Up-to-date management information
• Six months of business bank statements
• A tenancy schedule or lease where the property is let
• Identification and proof of the deposit source
• A business plan where trading is changing

What lenders assess on a commercial mortgage

Risks to weigh before you commit

• Interest-rate movement on variable-rate facilities
• A valuation coming in below expectation and reducing the advance
• Tenant default or a lease event weakening income cover
• Personal guarantees extending liability beyond the company

Commercial mortgage at a glance

Who is portfolio suitable for?

Portfolio suits borrowers whose requirement is secured on a first legal charge over commercial or semi-commercial property and who can evidence a credible repayment route. Lenders test debt service cover, usually requiring net income of at least 125% of the loan payment, or interest cover of 145% on investment cases before considering the applicant's wider profile, so suitability is determined by the asset and the exit as much as by trading performance.

How much can be borrowed against portfolio?

Advances are governed by an independent valuation, with advances commonly between 60% and 75% of value, with owner-occupied cases reaching higher than investment cases. The realistic ceiling is whichever is lower: the advance the security supports, or the amount that satisfies debt service cover, usually requiring net income of at least 125% of the loan payment, or interest cover of 145% on investment cases. Requesting less than the maximum usually improves both the rate and the likelihood of approval.

How is portfolio priced?

Pricing is constructed from a margin over the Bank of England base rate or SONIA, plus an arrangement fee typically between 1% and 2% of the facility, then adjusted for the advance requested, the strength of the exit, and the lender's exposure period. Arrangement, valuation, legal and any exit fees should be added before comparing offers, because the lowest headline rate is frequently not the lowest total cost.

What documentation is required?

A complete submission normally includes six months of business bank statements, a tenancy schedule or lease where the property is let, identification and proof of the deposit source, a business plan where trading is changing and two to three years of filed accounts. Gaps are priced rather than overlooked, so assembling the pack before approaching lenders protects the terms available and materially shortens the timetable.

How quickly can portfolio complete?

A straightforward case typically completes in six to twelve weeks, with valuation and legal work accounting for most of that period. Valuation and legal due diligence account for most of the elapsed time, so instructing solicitors early and clearing conditions in parallel rather than in sequence is the most reliable way to hold a completion date.

What are the main risks of portfolio?

The principal risks are tenant default or a lease event weakening income cover, personal guarantees extending liability beyond the company and interest-rate movement on variable-rate facilities. Because the facility is repaid from trading income or rental income over the term, or refinanced at maturity, a repayment route that slips is the most common cause of difficulty; building contingency into the timetable is considerably cheaper than negotiating an extension under pressure.

Your property may be repossessed if you do not keep up repayments on your mortgage.

Late payment can cause you serious money problems. For help, go to moneyhelper.org.uk.