Commercial mortgages

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Commercial mortgages

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tigerminxy

Joined: 13 Jul 2005
Posts: 11

Posted: Mon Jul 18, 05 7:09 pm Post subject: Commercial mortgages

Does anyone have much experience in getting a commercial mortgage? As my future wife and I will be looking at getting a business which has owners' accommodation, we assume a commercial mortgage will be required for the whole shebang.

Is there something equivalent to the personal mortgage thing, where you can get an agreement in principle to lend a certain amount, so that you can restrict your search accordingly and also show potential sellers that you're a serious buyer?

Also, if we're buying an established business, do we just need to make sure the previous few years' takings will more than cover the mortgage or do we have to prove some sort of track record in having run a similar business as well?

TIA.

monkey1973

Joined: 17 Jan 2005
Posts: 683
Location: Bonnie scotland

Posted: Mon Jul 18, 05 7:32 pm Post subject:

I'm not sure about the business aspect of it but my pal and I were looking to go into the property development malarky and didsome investigation into it.
What I found was that only certain banks would give us mortgage style financing. We had an interview with the Clydesdale bank who interviewed us as they would a married couple (although I should say my pal and I are not that close!) and we got a principle agreement to borrow a certain amount (80% of the valuation). Any extra we required for renovations we needed to put up ourselves.
I'm not sure if this is relevant to buying an established business but it may be. Probably best to get out there and start calling some banks. Start with your own.

portwayfarm

Joined: 30 Jun 2005
Posts: 89

Posted: Mon Jul 18, 05 7:46 pm Post subject:

Each bank is different. When we bought the farm with livery yard with it we hunted around and could have a commercial for whole thing, a purely domestic one as the income from the stables only just made enough to make me (sole trader) start to pay tax or a 50/50 mortgage so the house was mortgaged to x amount and the rest was on the stables. In the end we went for a domestic mortgage with Abbey as it covered the business as well, as long as we informed them what the yard was, who was there, number of horses etc and we had to prove public liability insurance, third party, care custerdy and control and charts to show predicted income etc etc. This was in 2000 though and times change also the big deal with doing it with just domestic was Royal Sunalliance (buildings/contents cover etc) as they were also a source of insurance for people coming onto our property as long as they did not go near the business part of the farm.

Self Assessment each year was a pain and in the end we closed livery yard down and now use land / stables for personal use.

Good luck with the adventure.

twoscoops

Joined: 28 Oct 2004
Posts: 1924
Location: Warwickshire

Posted: Tue Jul 19, 05 8:25 am Post subject:

It is definitely worth calling the banks. The majors all have business advisors who will be more that happy to try and sell you some of their products. If you currently have a property with equity or a decent deposit for the business+premises it would be easier, but you will really have to convince them that you can make a living from it. Make sure you shop around though, as like domestic mortgages the banks can differ greatly. Also do your homework regarding business banking. Factors such as a large overdraft for cashflow, combining personal and business banking if you are a sole trader and repayment Vs interest only mortgages will have different levels of importance for you, so you need to know what you need rather than have a bank employee sell you what they want.

tigerminxy

Joined: 13 Jul 2005
Posts: 11

Posted: Tue Jul 19, 05 9:24 am Post subject:
Thanks, all. We have a large amount of equity and by the time we look in earnest will have hardly any debt apart from the domestic mortgage on our home (which is only 50% of the value of the house), so we think we're in a good position. I didn't realise that it was worth checking out the domestic mortgages to buy a business too, so I'm glad I posted the query!

wellington womble

Joined: 08 Nov 2004
Posts: 15051
Location: East Midlands

Posted: Tue Jul 19, 05 9:41 am Post subject:
I've wondered about this too - having had both personal mortgages and buy-to-lets (northern rock and paragon, both seemed OK) What if we wanted to buy, say, a house with an annexe (for the servants, you know ) and let the annexe and live in the house (or vice versa!) could you get part mortgaged BTL, and part personal, even though you bought them both together?

Bicky

Joined: 12 May 2005
Posts: 8
Location: North York Moors

Posted: Tue Jul 19, 05 10:24 am Post subject:

The short answer is yes, you can have a domestic mortgage. They are generally cheaper. You apportion part of the mortgage to the holiday let and then it's offset against tax.

The mortgage provider needs to know what you're doing, but ours (the Woolwich) didn't care that we are two properties, converting two more barns and another barn will be our office one day. So long as their investment is safe they seem quite happy to lend us their money!

There are some issues with capital gains tax when part of the property is a business, but you'll need to ask an accountant who knows these things to advise you. In our case it's not worth worrying about, but it might be in yours.

Have fun!

Bicky

Joined: 12 May 2005
Posts: 8
Location: North York Moors

Posted: Tue Jul 19, 05 10:26 am Post subject:
Wellington Womble, you can have two different mortgages on the same property, but you end up with two charges on the deeds and the two companies may fight over who takes preference.

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