Mortgages: Residential v commercial

sheafles

I am wanting to buy a house and convert it into a cafe. Can I get a normal mortgage for this or does it have to be a commercial one? I am currently employed full time and on my current salary I would be able to borrow the amount I require to buy the house but as soon as I discuss wanting to eventually run a cafe in this property, there seems to be a need to have a 40% deposit. What are the mortgage requirements when changing a home into a home/business? Would be soooo grateful for any advice. Thanks!

Thrugelmir

Biggest issue will the value of the property. As converting to Cafe will significantly reduce the properties value. That's if you get planning approval etc.

Why not find a suitable commercial premises to rent?

Dave_Ham

Unfortunately this is a simple no-no..

You would get the mortgage, but it would be a residential mortgage for you and your family to live in.

They are incredibly unlikely to allow you change of use or alike and definitely not if you are honest upfront.

Commercial properties represent higher risk and therefore lower loan to values and higher rates are offered..

sheafles

Thank you for such quick replies!

I do not want to change the structure of the building at all. It is a Grade II listed building and is perfect for what I require so should not lose value as would be just as easy to return back to a residential property. I would also be living in the property with my family so it would also remain a home.

I know it would be so much easier to find an 'already established' commercial property but I require very exact specifications for the ideas I have.

Have you got any suggestions that may better my chances?

Thank you.

Dave_Ham

You have to buy it commercially, no short cuts or top tips here I afraid unless you have rich relatives or another property to raise cash against and buy cash.

sheafles

Well, boohoo! No rich relatives for me. Thanks again for your help.

holly_hobby

Hi,

Yep, you would be looking for semi commerical finance if its also to be your primary residence.

The issues you have are :-

1. you would need to obtain change of use with the local authority from residential to commerical use for trading

2. assuming this is obtained, you would have to make the property fit for purpose and public use - which may call for changes that won't be permitted on a grade II listed residential property.

3. Re obtaining the finance, you would need to present a robust business plan, inc forecasting, plan of growth, and a definded period of the repayment of the capital - only secured if you have prelimary COU agreement from the LA.

4. Semi-Comm rates of this nature will SVR plus circa 2% & hefty fees.

5. You would need to purchase public indemnity ins

6. You and your property would need to pass food hygience certs etc for the purpose of preparing and serving food, with renewal as required.

Probably bits I've missed off but you get the general idea ...

Still fancy it ????

On a serious note, you can see that there's a lot more to it than simply getting a mge, both cost wise and blood, sweat and tears ! ... But if you do still have a flame burning, at least you have an idea of what it will all entail.

Hope this helps

Holly

sheafles

Thanks Holly, that is really helpful. I know I'm crazy but I'm a hardworker and I'm not yet deterred!!! I've got a vision and until I am sure its impossible, I'm determined to explore every avenue! I know its not an easy ride and there are plenty of hurdles in the way so all your advice is invaluable to me. Thankfully, I am in the fortunate position of having a job and am able to research thoroughly before I make any life-changing decisions and give it all up!!! Thank you again.

holly_hobby

Your first point of call is to have a general chat with your local planning office, re an application for change of use.

The grade II status and COU may require input from English Heritage and may ultimately be the early stumbling block on this (notwithstanding EH will need to veto any signeage, and property amendments that may be necessary for a public eatery)

Wish you well .... would be good as a follow up, if you could let us know how this all went

Holly x

Conrad

Commercial finance would only be granted on change of use, but you cannot get change of use as you are not the owner. What I imagine you will need is short term bridging finance to actual aquire the place, then get change of use, then get a normal commercial loan but the rates will be high as there is no existing business / no accounts. You'll be looking at at keast 9% rate plus hefty fees - even a commercial survey is c 2k usually.

Now the way some people do it in the real world outside of a mortgage training seminar, is they illeagaly buy the place using a normal resi mortgage and then just operate a business without telling the lender - v risky though

sheafles

So I've got plenty to be going on with and have made an appointment to discuss potential planning requirements with my local council to get a heads up on the how probable a change of use may be.

However, I'm still wondering, what is the main purpose of a commercial mortgage, does it relate to the property being used for commercial purposes or the fact that the mortgage payments may rely on commercial income? What if I was to continue my full time employment and run a tea room part-time and with the help of someone external who was not responsible for mortgage payments. I've used a mortgage calculator and am able to borrow the amount needed (residential mortgage) for the house based upon my current income.

I have also heard that a residential mortgage covers a property where more than 40% would be used for residential purposes. This would def be the case with the house I've seen as I would just like to serve tea in the two rooms (lounge and dining room) which would be set up in a tea rooms but everything else to do with the property would be purely residential. I do not wish to change anything within the house. Because it is a Grade II, I want to take advantage of promoting the historical value of the property and would therefore not reduce the value by making any permanent alterations.

What mortgage companies would I be best approaching as I'm not sure how specialist my requirements seem to be.

Thanks for all of your help. Mortgages are a mystery to me!!!