Commercial or Residential Mortgage??

lmw8586

Hi,

Husband and I are selling our current home and looking to buy a property where he can set up and run a business (mainly metalwork fabrication) from home, and me to keep my horses at home. He'll need large outbuildngs for a good sixed workshop, and storage space for vintage cars (hobby). Hoping for around 5 acres + for the horses - but no plans for livery, just my own use

I'm getting mixed advice from different brokers, and getting very confused to say the least!

Will we need a commercial mortgage due to the business / business premises? Or can this be done on a residential mortgage (subject to a small pool of lenders who might be interested)

To make it more tricky, his business doesn't currently exist, so there's no proof of earnings - our mortgage affordability will be based on my earnings alone (full time employed). We could do a business plan for him, but that's about it. What we're looking to borrow would be affordable on my wage alone

Dependant on the property we find, we'd also be keen to make it work for us - for example some we've seen have the potential to use part of the house or an annex as a holiday let, or possibly space for glamping etc (subject to planning). I'm guessig this would add weight to the argument for a commercial mortgage, of this was a possibility? Happy to be up-front with lenders about this possibility at the point of taking out the mortgage, but obviously don't want to end up in a position where a lender could decide we were outside of their terms and pull the mortgage out from under us!

Thanks for reading this far - any advice (or pointers to the right people to speak to!) would be very much appreicated!

Ta!

ACG

I think it would be commercial. 
The parts that would make it commercial (for me) would be the workshop for metal fabrication and the air bnb/glamping/annexe elements. 

The land for the horses would be fine but 5 acres would limit lenders and the vintage cars would be ok with it being a hobby. 

I suspect (I could be wrong) the brokers suggesting it would be residential would not be being upfront about everything. I understand the reasons for that, but it comes with its own risks. However, I say that but there is the possibility those brokers know something I do not. Ultimately this is one of those jobs where with quirky cases like this you could speak to 5 brokers and get 5 different answers and all of them being right to the best of the brokers ability. 

MWT

If you are open and honest with the broker and the lender as you obviously should be, I don't see how this can be anything other than a commercial mortgage.

If you were hypothetically looking just for a house with land sufficient for your horses and no commercial plans then you would be dealing with a small pool of lenders and able to get a residential mortgage...

... but that would most likely come with a restriction on any commercial use... so not really going to achieve what you want...

I would suggest talking to a broker on the basis of a semi-commercial (mixed use) mortgage backed by your income and the business plan you are going to have to produce...

Let's see if any of the brokers here have any different suggestions...

 

lmw8586

Thank you! Confirming my suspisions re. commercial to be honest (husband's not so happy about this due to the higher interest rates and possible bigger expense in getting a commercial / semi-commercial mortgage set up - but I'd rather get it right in the first place than take the risk of losing it all!)

We're not specifically looking for properties that would allow holiday let / camping etc, but if the one we buy has these options we'd definitely look to make the most of it! If we're already on a commercial mortgage for the metalwork business I guess that's an easier conversation all round too

The 'semi-commercial' idea seems to mean different things to different people - the brokers I've spoken to say it's not really a thing, it's either residential or commercial, but it seems a very common term on good old Google. Is it just a case that anything commercial will be a bit bespoke depending on the specific property / business needs, where residential tends to be a bit more 'one size fits all'?

And could we even hope to get a commercial mortgage with no evidence of earnings from the business so far? (i.e. with my earnings from separate employment and a business plan for him)

Not sure if recommendations are allowed on the forum? But if anyone can point me in the direction of a good broker to speak to, that really understands the sort of thing we're after, I'd be very greatful! (Or any other advice you have??)

Thanks!

noitsnotme

I purchased a mixed residential/commercial property a few years ago.  It had to be on a commercial mortgage and had to be a repayment mortgage (no option for interest only).  The longest term available was 15 years and the maximum LTV was 75%.  The lender also insisted on a guarantee (debenture) from my limited company that occupies the commercial portion of the property.

I didn’t use a broker, choosing instead to use the bank I used for personal and business for many years.  This made things a bit smoother as they already knew my financial history very well.

I’m sure a decent broker could open up different options for you but this gives you an idea of how some things may differ from a residential mortgage (more expensive and more hoops to jump through).

ACG

Its interesting as a regulated mortgage under FCA rules only needs to be 40% residential.  https://www.handbook.fca.org.uk/handbook/PERG/4/4.html (if you have not passed a degree in languages, you might struggle with the FCA language, that assumes you do not fall to sleep first). 
Nationwide for example allow you to have a B&B (up to I think 2-3 rentable rooms) or allow things like a cattery etc. I dont know about anything else though. 

But most lenders would not allow you to run a business from home - although I think most turn a blind eye to businesses where you have a phone and a laptop. 

I dont think there is a semi commercial mortgage out there other than if you are buying something like a shop downstairs and flat upstairs type of business. Although I suppose in theory what you are proposing is not really any difference, you will live and work on the same land. 

There is no harm investigating the residential side in the first instance. 

lmw8586

ACG said:

Its interesting as a regulated mortgage under FCA rules only needs to be 40% residential.  

Thanks - yes this 40%/60% has come up, I was told this was based on the square footage of buildings vs house (and not sure how land fits into this, if at all). Quite possible that workshop/outbuildings (and stables/barn, although they're personal use?) - would end up over the 60%...... I'd also worry if we needed to add any further outbuildings in future, if this pushed us over the 60% would that then be in breach of the terms of our mortgage and become a big risk? One to clarify with specific lenders I suppose......

Looks like they're quite happy with businesses from home as long as it doesn't really alter the property - so none are really worried about using a bedroom as a home office for example. More surprised about a cattery though! (Definitely not my thing ;-))

ACG

It sounds like you have done a fair bit of research. I think you probably know more about this than me haha. 

lmw8586

  Haha - I've tried but definitely getting a bit stuck and confused! Very grateful for all replies, it's all helping to get us pointed in the right direction! Thank you :-)

gwynlas

If the business part of the venture does not exist at the moment I brlieve that you would need a residential mortgage as there is no evidence that the business could support mortgage payments therefor would be reliant on current salary affordability. You should probably be looking at properties of sufficient scale for your enterprises with suitable outbuildings for light industrial use and the land for your animals. I think this would lead you towards small holdings but where would also be dependent on the local need for metal fabrication unless your husband has clients in mind

JMA74

gwynlas said:

If the business part of the venture does not exist at the moment I brlieve that you would need a residential mortgage as there is no evidence that the business could support mortgage payments therefor would be reliant on current salary affordability. You should probably be looking at properties of sufficient scale for your enterprises with suitable outbuildings for light industrial use and the land for your animals. I think this would lead you towards small holdings but where would also be dependent on the local need for metal fabrication unless your husband has clients in mind

The question on the application asking if any business will be run from the property would halt a lot of residential lenders.  And then saying that they would be starting a metal fabrication business will rule out all the lenders I can think of. 

The only way I can think for op to get a residential mortgage would be to omit relevant information and mislead the lender..... Not advised

Plenty lenders would decline a property next door to this type of business, never mind it being on the same title