SIPP borrowing money to purchase commercial property

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Has anyone gone through the process of purchasing commercial property via their SIPP where a mortgage was obtained ?

I'm looking at the costs, interest rates and general ease and flexibility etc.

Also, how is the mortgage affordability calculated (I suspect proposed yield) but what about other SIPP assets or contributions - are / can they be included ?

CannySaver_2

Hi

A lender will unerwrite the application in pretty much the same way they would do if it was the company borrowing money. If your business will be the tenant then the lender will want to be comfortable that your business can meet the rental payments, which in turn will give the SIPP liquidty to meet the loan repayments. Furthermore the lender will want to see a lease in place at least equal in length to the term of the loan and the monthly renatl payments will need to equal the loan repayment plus some headroom to cope with any rise in interest rates.

In terms of charges and interest rates, there will no no difference whether they lend to you personally, your business or your SIPP. Of course you will have additional SIPP fees.

The following link shows you which SIPP providers will allow commercial property in a SIPP.

http://www.!!!!!!.uk/sipp-zone/help-choosing-your-sipp/commercial-property/

I hope this helps. Feel free to fire more questions at me, its a topic I know pretty well.

The Canny Saver

property.advert

Thanks for that.

Though I have businesses, I do not want them tied to this venture.

In the same way that a BTL is based on an agent's perception of the market rent, would this not simply be an appraisal of the marketability of the said commercial property ? Of course, I could put a real or dummy company in the middle to "agree" a lease but I would rather avoid that. If they require 150% of the loan repayment then is not an agent's valuation at £15k pa good to cover loan repayments at £10k pa ?

As an aside, have you come across two partners each buying a proportion with their own SIPP funds, either with a loan or outright ?

CannySaver_2

Hi

I'm afraid your business will be important to the lender. If your business will lease the property, the lender will want to see that there is sufficient cash flow / profit in your business to meet rental payments. You may be already renting a building, which will make it easier to prove affordability. Putting a dummy company in to rent it on your behalf won't work (in my opinion) as that company has no track record. The lender will also want to see a lease at least equal in length to the term of the loan. Your business isn't "tied" to this venture, in that it is guaranteeing the loan in any way, it has simply signed a lease with your SIPP to rent the building in the same way it would sign any lease to rent a property from a third party.

If you are planning to rent to a third party then the lender will want to confirm that there is sufficient liquidity in the SIPP to meet any void periods.

It doesn't really work like a buy to let mortgage where a lender will simply get the surveyor to assess the letability of a property and make statement as to the likely rental amount.

Yes, I have been involved in and had friends be involved in property deals which required two or more parties to be involved with buying a building. It makes it a little more complex and you should also consider the merits of a SSAS, but then again perfectly 'doable'.

Hope this helps.

The Canny Saver

SippTechie

Just to reinforce the point made by CannySaver it is unusual for borrowing to be made available to a SIPP to purchase commercial property without the assurance that a trading company will be there to pay rent and therefore meet loan repayments.

I have seen this done but not since the availability of lending was tightened up as a result of the credit crunch.

One thing to mention is that the possibility of putting a "dummy" company in place as the head-tenant and sub-letting the whole property to one or more tenants has only officially been possible since 2006, and you never know the door might be closed on it in future.

Before 2006 where the head-tenant was connected to the SIPP member it had to be using at least some of the property. If it sub-let the whole property this was a breach of the rules. There were work-arounds, for example I've seen leases which sub-let the whole of a property except for a broom cupboard which the head-tenant traded from, but I wouldn't want to rely on loopholes like that.

If you are looking at property then there is no need to just consider vacant property. You may find things simpler looking to purchase a property where there is a tenant already in place. This is something which SIPP providers will be used to dealing with, in fact in many ways it is the simplest option for the SIPP provider as they don't need to worry about complying with the various rules that are relevant where the tenant is connected to the SIPP client.