Switching part of mortgaged property into cafe - issue with lender?

Thrugelmir

Your actions suggest that little thought have gone into your plans. 

LeicesterTerrace

Thrugelmir said:

Your actions suggest that little thought have gone into your plans. 

Thank you for your thoughts Thrugelmeir. 
Humans are highly ingenious...so I'll figure it out.

LeicesterTerrace

May I ask (i'm curious now...), what actions? Elaborating would be useful - I ain't Mystic Meg!
Thanks in advance.

Annisele

Thrugelmir said:

Sounds as if the heart has ruled the head.......... 

This wasn't my comment, but since I agree with it I'll pile on. But of course @Thrugelmir might feel I've entirely missed their point.

A 90% LTV product means your lender is pretty tight on security. So unless the valuation of the property without the vestry is pretty high, the lender is unlikely to want to see bits of its security stripped off and moved to separate titles.

It's also possible that opening a cafe next door would reduce the value of your house. Being next to commercial property isn't always positive for lenders.

I'm dubious that you could have added an enormous amount of value since 2019 - but if you've done significant building work etc, then maybe.

Your reference to crowdfunding (together with the 95% LTV) makes me doubt you have the funding to carry a project like this through. But of course you might have the 95% product in order to preserve savings for your new venture, in which case I'd feel differently.

(I'm also unconvinced it's a great idea to start a hospitality business in the middle of a pandemic, but that's another issue entirely.)

LeicesterTerrace

Hi @Annisele, thank you for your comments. I'll go through each part:

The value of the property would be at least the same if the vestry was to be released. In all honesty, when we were looking to get a mortgage last year, a lot of lenders were pretty nervous about the vestry and in the end it got through effectively as a glorified annex, in that it has a separate entrance and a kitchen and bathroom.

I understand your comment on the value potentially being affected, however this all comes down to what type of cafe we're talking (high end cafe with farm shop) and of course the layout of the overall property. Rather than explain in detail, its better to just say that it is something that is much needed in the area (it is a small village on the outskirts of Snowdonia and the vestry used to be where the locals would congregate) and we have done our homework and concluded that it would in fact add value to the area because it will exist. I appreciate a lender may look at this a little differently, but that's up to us to convince them. The properties face away from each other (even though they are adjoined - the dor to the cafe would be on the right-hand side of the attached image. we also own land to the right which is and would continue to be a car park).

We are thinking of getting the property valued just for interest, both together and the house alone, so we'll see if the work we have done has added a lot of value. We really did get it for a knockdown price on the sealed bid (228k with 25k spend) smaller houses in the area are going for 275k. I think a lot of people were put off by the fact you were buying off the church and that the house had not been lived in for 2 years (it was pretty basic and out of date when we bought it). But,  we got lucky -  the diocese were easy to work with, there are no strange covenants and the property is well built and sound.

We have a 90% LTV, not 95%. We borrowed this level as we had money to spend on the actual building, which would have added significant value to the place. Crowdfunding - we have a friend who did this for his cafe and it worked a treat. It would be for the internal space, getting it up to scratch. When my friend did it, he sold the idea on Crowdfunder, and people pledged - £30k in total. he has said that we could easily do the same again and he will happily get behind it. The area is crying out for a cafe and many people have come to us asking if we could do this. I don't think there's too much more to say on that.

Lastly, I'm not looking to start the cafe idea in the middle of a pandemic. I never said that. At this stage I'm just looking into the options. We already have our hands full anyway - we also own a 5* hostel in Snowdonia. 

Thanks

davidmcn

LeicesterTerrace said:

I understand your comment on the value potentially being affected, however this all comes down to what type of cafe we're talking (high end cafe with farm shop)

It may well not - lenders/surveyors are likely to be concerned with what an apparently benign commercial use might turn into. The planners can't really ensure that something continues to be "high end", and once a cafe use is established it's a fairly small step to turn into a more troublesome form of venue. I appreciate in this location that's probably unlikely, but lenders tend to stick to their rules.

LeicesterTerrace

Yes, I appreciate that lenders take a more broadbrush approach than looking (ideally, for us) at our specific location and circumstances. Thank you. I'll see how I go and report back

gwynlas

Whilst we know you already have a hostel do either of you have experience of running a cafe/restaurant?
Do you have a fall back position to cope with illness of either of you or if following investment the cafe fails to make sufficient income to employ you both?

LeicesterTerrace

Diolch Gwynlas.

No experience of owning a cafe/restaurant, but this has been many years in the making and we know some very successful cafe owners (and have done our research) and as a result, we know the risks, pitfalls etc. Like the hostel, we didn't have any prior experience (I was in finance and my wife in fashion in Central London) and that's worked out pretty well. We have as many of the answers that anyone needs when moving into a business that is a close cousin to the accommodation industry - the rest will be picked up when we make the mistakes, which we look forward to.

As for employment, it won't be both of us. Just me to begin with. Plans would be to start very small and grow as the reputation grows. Not all singing all dancing from the off - just tea, coffee and cakes. The area needs a space for the community, parents from local school drops off, cyclists and walkers etc and so we will add to it as and when we see fit. Growing organically will work well for us, as it will for community as it gets used to having a place like this next door.

We lived in Haddenham for many years (Buckinghamshire), and we watched a small business grow into something quite amazing now (Little Italy/Norsk).  That is an example of what can be done and we have them as contacts for support if required.

And yes, fall back position if all fails, the building could be accommodation, since we are on the foothills of Snowdonia and 1000s walkers every year walk past.

In addition, I have another small business idea on the side that is shaping nicely. Very low overheads and potential big income. if my background in finance taught me anything, was to diversify!

Annisele

OK, I take back my agreement to the heart ruling the head comment, apologies. I still think you haven't thought all of this through yet - but you also haven't started doing anything yet, and clearly the point of this post is to help with the thinking.

You initially just asked about the mortgage, and I don't have anything to add to what's already been said about that. I think the key thing is going to be the valuations, and there's not much point in speculating until you get them. But just in case this isn't already on your radar - you understand the tax consequences of splitting the title / using part of your land for commerical purposes? I don't know exactly what those consequences will be, and they depend in part on exactly what you decide to do, but there will be some consequences.