Commercial mortgage for house & shop

tbumps

I'm looking to buy a house & shop that also has a very large building attached that was used as a factory. The shop is empty & I have a retail business that I want to use to get a commercial mortgage & transfer to the new shop (we're currently renting). I have a few questions:

Is it better to have the residential accomodation less than 40% of the property? I know this means the mortgage will be unregulated - does that mean it may be easier to find one but we have less protection? Depending on how the planning authority feel, accomodation could easily be a little more or a little less than 40%.

As the business will be buying the property but we'll be living there, should we charge ourselves rent for the accomodation? Would this make a commercial mortgage more viable?

The factory is in need of hefty renovation. We hope to borrow enough money to cover some of the renovation costs as well. Is this likely to be viable?

I've read about splitting the title of the property in order to obtain different mortgages on different parts. It may be worth us doing this to split off the fcatory but what are the implications of this?

Any help gratefully received!

TB

Conrad

A regulated residential mortgage is unlikely to be available for any property which is attached to a commerical unit.

If you divide the deeds a regulated resi mortgage on the dwelling would only be available if the property was physically and legaly separate. However, most resi lenders will not lend on a property that is right next to a commerical unit. Some might do but it will depend on the valuers comments as to the detraction the commerical unit would have upon future value - and remember they will consider things like the commerical unit may one day belong to another person keeping unsocial hours and or a business type that has negative impacts such as noise and smells.

It's sound like a commerical mortgage would be the only option.
Charging rent is possible but will need the in depth analysis of an Accountant.

Commerical mortgages are available up to about 75%. Note a commerical valuation tends to be based on the '90 day rule', which is to say, the valuation will reflect the price achievable in the event of a repo and fully completed within 90 days. As an example I just did a very profitable pub / restaurant. Whilst it could be sold now as a foing concern for about £900k, the Banks valuation was £500k as it assumed things like licenses had lapsed (in other words the business had failed and only the bricks and mortar would be sold - at auction).

Almost every lender will base the loan on cashflow, not size of deposit. You'll need a sound business plan and usualy lots of supporting income evidence. Lenders are not into 'hope stats' now. At this juncture potential client's invariable say to me "but why does cashflow matter, the Bank will have loads of equity and can always repossess". This is utterly wrong for many reasons, for example; Banks have to set aside more cash and cannot lend to others, the higher thier repos are. Plus there are legal implications - people claiming the Bank lent irresponsibly etc etc etc.

Having said that, a couple of small private lenders can lend without any income evidence or business accounts, but the rates are at least 14%!!

All the best

Conrad

I just re - read your post and in fact I am 99% certain only a high charging specialist lender would entertain this. Likely maximum loan would be 50 - 60% based on a 90 day valuation.

Perhaps stomach this until the place is renovated and you have a couple of years trading figures to show, then remo to a high st Bank if possible. Of course it's high risk on the face of it.

tbumps

Thanks, Conrad. So where do I find such a loan shark? (Only joking...) I've been chatting to a mainstream mortgage advisor who doesn't think we can show that we have enough income. Desperate to move and willing to look at paying a higher rate if that's what we need to do for a few years.

The issue from the mainstream advisor's POV seems to be that the business is young & doesn't yet show much profit. Part of that is due to wages costs (we draw £100 per week). I also have a second limited company & am talking to an accountant about whether to combine both companies which will then show a higher turnover although again most of the profit comes out in wages.

To purchase the building (with no allowance for renovation costs), we'd only need a mortgage of about 40% of the purchase cost. We're then stuck with not being able to renovate unless we decide to do that in a few years when we're able to remortgage. Sorry, just thinking out loud really but desperate for some help!

TB

tbumps

Quick update - a few brokers are checing out some possibilities. One is only going to High Street lenders so I'm not holding out too much hope. Another - Crystal Mortgages - has come up with a 'deal' (not calling it an offer as Im sure it's technically not yet) @ 9.9% for Year 1 then 11.9% with repayment penalties for 8 years (8% in Year 1, 5% Years 2, 3 & 4 then decreasing 1% per year). Sounds a bit rubbish in terms of comparison with residential mortgages but perhaps this is the best deal we can get.... any thoughts gratefully received as ever. (One drawback is a valuation fee of £880 so a lot to spend before we get a mortgage decision).

SouthCoast

which will then show a higher turnover

Turnover is vanity, profit is sanity.

happybroker

tbumps wrote: »

Quick update - a few brokers are checing out some possibilities. One is only going to High Street lenders so I'm not holding out too much hope. Another - Crystal Mortgages - has come up with a 'deal' (not calling it an offer as Im sure it's technically not yet) @ 9.9% for Year 1 then 11.9% with repayment penalties for 8 years (8% in Year 1, 5% Years 2, 3 & 4 then decreasing 1% per year). Sounds a bit rubbish in terms of comparison with residential mortgages but perhaps this is the best deal we can get.... any thoughts gratefully received as ever. (One drawback is a valuation fee of £880 so a lot to spend before we get a mortgage decision).

Crystal actually lend also and they certainly know how to charge. Given that you haven't made mention of the fees for this deal I worry that they haven't told you what they are yet so please ask before you go any further.

The valuation fee isn't a million miles off for commercial to be fair but their arrangement/ broker fees will be high. Make sure you have everything written down that they are going to charge and then you can make an informed decision regarding the suitability of the product.