Taking home mortgage to expand business

Mlasso

Hello,

I own my home (mortgage free) and I would like to know if it is possible to take a mortgage on my home in order to expand my business. 

I would need to take mortgage in amount of 30% of my home value. For example, if my home value is 100gbp (hypothetically), I would need bank to borrow me 30 gbp.

My salary is sufficient enough for this mortgage and it is around 10% of my home value, so I would need 3x my salary as loan.

My business is profitable and the reason why I am thinking about this instead of business loan is because I can get much better terms, plus I would like to keep business loan free in case I need bigger loans in future (we are planning further expansion). I would therefore like to get personal funds from my home, and give them to my business as Director's loan.

Would this be possible? Will bank ask me why I am taking the mortgage (considering it would be an extremely low risk for them due to low loan to value) and can I say what I write here (will that be an issue)?

Thanks!

Toonartist

From an underwriters point of view.... No.

A mortgage is a residential loan and you'd be using it for a commercial business. Two different types of loan. I would decline it it a heart beat if it passed my desk as it goes against residential T&C's.

BTL loans are a grey area (loan wise) as you are borrowing for a business but the property is that business. But again, one loan one property (business) different T&Cs. As soon as you want to secure a one loan for multiple properties it also requires a more traditional business loan with business rates and T&Cs.

You need to speak to your bank about borrowing money for a commercial enterprise rather than using a residential loan to expand your business. If they find out afterwards or, during the application then you risk receiving a CIFAS notice being registered against your credit file warning other lenders. Or, even worse, recall the loan

Seriously, it's best to tell the lender exactly what you want to do and they may even have a specific product that does fit your needs without trying to fudge it. It's not worth damaging your credit file!

kingstreet

Here's Halifax criteria, as an example;-

The reasons for capital raising which are not acceptable

Business purposes/cash injection into a business
Self employed customers wishing to pay business debts, overdrafts, tax bills etc
Any funds being raised for use in any way towards a current or new business venture including buying out a business partner or using money to invest in assets for a business (i.e. machinery/vehicles or stock) is not permitted

K_S

Mlasso said:

Hello,

I own my home (mortgage free) and I would like to know if it is possible to take a mortgage on my home in order to expand my business. 

I would need to take mortgage in amount of 30% of my home value. For example, if my home value is 100gbp (hypothetically), I would need bank to borrow me 30 gbp.

My salary is sufficient enough for this mortgage and it is around 10% of my home value, so I would need 3x my salary as loan.

My business is profitable and the reason why I am thinking about this instead of business loan is because I can get much better terms, plus I would like to keep business loan free in case I need bigger loans in future (we are planning further expansion). I would therefore like to get personal funds from my home, and give them to my business as Director's loan.

Would this be possible? Will bank ask me why I am taking the mortgage (considering it would be an extremely low risk for them due to low loan to value) and can I say what I write here (will that be an issue)?

Thanks!

@mlasso Most mainstream lenders will not allow you to raise funds using a residential mortgage for non-BTL business purposes.

However, a couple of mainstream lenders (HSBC is one example) and a few smaller/specialist lenders will consider capital raising for business purposes.

If the business is BTL in your own name, a lot more lenders will consider.