Semi commercial mortgage, advice needed!

Charliezoo

We'd like to upsize and have seen a lovely big house. Behind the house are stables, a paddock and a warehouse, all included in the sale and listed on the deeds of the house. We have a small business and the warehouse would be useful. We'd also like to rent out the stables and paddock but our main interest is really in the house itself.

I have been told that I would likely need a commercial mortgage. The EA's mortgage advisor says a normal residential mortgage from certain lenders would be fine - we haven't consulted him, this is just what the EA told us he said, not sure if this is correct. As we have a small limited company, a commercial mortgage should be possible although our deposit (approx 30%) would be from personal savings and the sale if our own house. Could we buy the property through our business and rent the house back personally or is there a better way to buy it?

Although I'm not new to buying houses, this is a totally new thing to me. The property has been on the market for 9 months and I'm wondering if its due to difficulty in getting a mortgage.

I'd be interested to know what are options are - obviously we will consult our accountant and a mortgage advisor but it'll be good to get some initial advice on here. Thanks

Yorkie1

I believe that if there is mixed use, a residential mortgage is unlikely to be a starter.

As a very general rule, EAs' mortgage advisers are often relatively inexperienced and don't appreciate the finer points of unusual situations.

Get to an independent, whole of market, broker and see what they say.

holly_hobby

No, the EA adviser is wrong, you will at best require a semi-commercial mge, if you wish to use the property for commercial use/gain.

If you elect not to use commercially, then a change of use with the local authority, may help facilitate a resi mge, BUT this must be bottomed out with the lender before submission, and the COU would need to be in place pre completion.

If you want to buy via your Ltd Co, with you renting it back, this may be possible, but there are certain points that will have to be met - your accountant will advise on the finer points.

From a mge point of view, they will be looking at prev experience of running a livery/equestrian centre, bus plan and the figs associated with the business itself and your own company's trading figs supporting the loan/business. What you intend to store in the outbuildings adjoining the property may also cause concerns if hazzardous/flammable etc. Typical max commercial LTV 60% - 75% max.

This generally will be way out of the scope of an EA adviser and their contact panel/knowledge bank (whom tend (but not always) to be newly qualified or inexperienced)

Even many independent mge brokers tend not to get involved in commercial finance, due to the complexities and time consuming requirements of pushing through to completion.

So a commercial broker is the way to go with regards placing this in the shortest time, at the most competitive rate, with support and assitance along the way (ask your accountant whom will probably have suitable broker contacts).

Alternatively, you could approach your current coprorate bankers with the enquiry, and see what their prelimary thoughts are to give you a rough idea on how it may pan out, with what requirements.

Hope this helps ... good luck

Holly x

Charliezoo

Thank you. I thought it would be unlikely to be possible to get a residential mortgage but I am surprised how clueless the EA/mortgage advisor/vendor are about it, especially as its been on the market for 9 months.

We have an IT business and will probably use it to store computer parts and domestic items before deciding on a more permanent use for it . We are both the only CDs so this shouldn't be a problem. The stables would be nice to rent out, just so they're not sitting empty but we aren't experienced in livery and would only expect our expenses to be covered in rent.

The main priority is to buy the house but we wouldn't want to change the use of the whole property to residential as we would like to use it for business in the future. Would submission of a business plan really be necessary? Our current business is established and in profit and the business accounts contain enough money for a good deposit, further boosted with the equity in our house which is on the market.

Thanks again.

holly_hobby

If you intend to use profits as part of affordability of the business to be run ie livery, then yes a business plan is reqd. If not, then the lender will want examination of your current books, and will want to investigate if delving into a new venture (livery), will in any way effect the current business trading and income - as obv that may effect the future trading figs.

Another aspect you must take account of, is that apart from paying rent (which will be subject to corporation tax, and proportionate payment under turnover if you are flat rate VAT), and if you don't pay rent, will be taxed as a BIK.

The property will be an asset of your Ltd Co, and if it gets into difficulty your home will be at risk, unless you sourced your own private mge at that point to effectively pch off the business (which you'll also need to do if you wish to wind the business up).

Furthermore, if held privately, any gain on disposal of your home (whilst your primary residence) will be fully exempt under PRR regs, whilst the gain if held by the Ltd Company will always be subject to corporation tax.

Although there are some tax advantages for the ltd co owning the unit, I personally wouldn't pch my own primary residence under the vehicle, due to the issues noted above, which I feel would generally outweigh any immediate mge interest tax offsetting (if this was the driving reason for it to be held under the ltd co).


Indeed, as this is obv a first venture for holding property within your ltd co, you really need to ensure you fully apprecaite and understand the pros and cons, and should be speaking in depth about this to your accountant, who'll give you futher details relevant to your circs and guide as necessary.

Hope this helps

Holly

xyellowx

keep it as a personal mortgage if you can interest rates will save you thousands, how large is the warehouse? can it not be passed off as a large garage/storage unit

only problem may be the lenders valuation is far less than the asking price

xyellowx

Although I'm not new to buying houses, this is a totally new thing to me. The property has been on the market for 9 months and I'm wondering if its due to difficulty in getting a mortgage.

maybe but more likely its because not everybody wants a lovely big house WITH stables paddock and WITH warehouse so limits potential buyers the bank will take this in mind with a veiw of if they ever have to reppo so expect silly interest rates to be thrown at you

best of luck

holly_hobby

xyellowx wrote: »

keep it as a personal mortgage if you can interest rates will save you thousands, how large is the warehouse? can it not be passed off as a large garage/storage unit

only problem may be the lenders valuation is far less than the asking price

Sorry I've mis-lead, when I say "personally" held, I mean in the OPs own names, and not under the ltd company - it will still be a semi-commercial mortgage due to the proposed business use, so won't get residential rates either way. (semi comm - about 1/5% to 2% above svr).

Also even if the business use isn't delcared (which would amount to a fraudulent app so isn't advised), if its registered with the LA as a property of mixed use (ie resi & commerical), change of use from business to residential will have to be sought in any event to secure a resi arrangement.

So its a commercial mge, its just that it may be more adviseable that the OP holds under their own names, rather than as an asset of the ltd co.

Hope this helps

Holly

Charliezoo

The warehouse is probably too big to pass off as a garage - is about 1500ft. We also would like to be able to use the warehouse for business purposes at some point so conversion to residential would prevent this. The vendor said herself that it wouldn't be a good idea to convert it to residential as apparently the council have become strict on commercial properties and development and she didn't think we'd ever be able to convert it back to commercial.

It's a shame it's going to be difficult, it was the house itself that first caught my eye and it would be perfect for our family. If the accountant is happy and we manage to arrange a commercial mge, would we be in a good position to negotiate on price given the problems any potential buyer might have?

holly_hobby

Yes, don't forget the probs they will/may have in selling (which may be attractivness to the market, compounded by sourcing of finance and reqd deposit circa 25%) will also be your own when (if) the time comes for onward sale .... so do tread carefully before you jump in x

Wish you well...

Hope this helps

Holly

xyellowx

i looked at a property with a small transport yard and barn type garage attached after 6 months thinking about it veiwing it 3 times and having a offer refused as to low i left it alone
reasons- 1. work was next to my home so would always be on my mind plus we have 2 small children so risk of accident 2. if we decided to move would be selling to a VERY limited market

the property was on the market for 3 years and sold for 25k less than i offered