Pub Mortgages
If you are looking to acquire a pub in using a Mortgage, then you have come to the right place. Mortgage Lane are award winning finance brokers, specialising in Commercial Mortgages. Pubs are regenerating in UK to cater for social evolution, so whether you are looking for short term funding to develop and generate profits on your accounts or to get a mortgage, to purchase a going concern, we will have the most competitive options for you!
Pub mortgages property types
- Grade 1 listed pubs
- Grade 2 listed pubs
- Hotel and pub businesses
- Pub and restaurant businesses
- Mixed use pubs with additional commercial units
Pub mortgages we can assist with
- Borrowers that are Non homeowners
- Borrowers with previous liquidations
- Pubs with no financial accounts
- Borrowers with adverse credit
- Borrowers with no experience
TYPICAL TERMS FOR A LOAN ON A PUBLIC HOUSE
- 70% Loan to value
- 2% product fee added above LTV
- 3 year fixed 7.19%
- 5 year fixed 7.29%
- No exit charges
QUESTIONS ABOUT PUB MORTGAGES
Freehold pubs are owned outright, while leasehold pubs involve renting the property from a landlord. Lenders may have different requirements and terms for each type. With Leasehold, some lenders will have a minimum length to be remaining on the tenure to be an acceptable security, so it is best to check with a broker to make sure you are looking at a pub with good mortgage options available in relation to the length of term remaining on the leasehold. Small terms remaining on a pub may impact the valuation of the building, but it also best to check with your solicitor any potential extensions you may be able to apply for to expand on your funding options.
Yes.
A trading pub with an existing business is generally viewed more favourably by lenders than a pub that is closed or needs significant renovation. This is because a trading pub has a tracked record and a closed pub can only provide projections which comes with reduced certainty for a lender. However, you will be able to achieve mortgage options, but this may come with lending based on the vacant possession, or bricks and mortar. Usually lenders may propose to lend based on a 90 day valuation which assumes it is sold to a buyer within 3 months of advertisement and this is usually lower than Bricks and Mortar, vacant possession (VP).
When considering a pub mortgage, choosing between specialist lenders and high street lenders involves weighing the benefits and requirements of each:
High Street Lenders
Often, established high street banks can offer competitive interest rates for pub mortgages, making them a cost-effective option, they might also insist on a repayment mortgage rather than interest only.
High street lenders typically require borrowers to have substantial experience in the hospitality industry. They prefer applicants with a proven track record of successfully managing or owning similar businesses.
Specialist Lenders
Specialist lenders are more flexible regarding the experience requirements. They are willing to work with borrowers who may not have an extensive background in the industry, however, this can mean they might offer less favourable interest rates and might lend upon a valuation which will be based on the brick and mortar, rather than its commercial investment valuation.
Over the years, specialist lenders have become more competitive in their rates, narrowing the gap with high street lenders and providing attractive financing options.
Specialist lenders might also offer interest only mortgage options which can benefit borrowers from having access to more cash flow instead of choosing to amortise the loan.
Pub Refurbishment Loans
When considering pub refurbishment loans, it’s crucial to understand the specifics of development finance to ensure successful project completion.
Loan to Gross Development Value (GDV)
These loans typically offer a maximum of 65% of the GDV. This means the lender will fund up to 65% of the projected value of the pub after refurbishment.
Day 1 Purchase
Up to 60% of the purchase price can be financed initially, which covers the cost of acquiring the property.
Build Costs
Lenders may cover up to 100% of the refurbishment costs, subject to the total loan not exceeding the GDV limit.
Exit Strategy
The exit strategy is the most critical aspect of short term funding. Lenders need a clear plan on how the loan will be repaid, which could include selling the refurbished property or refinancing into a longer term mortgage. A well defined exit strategy will be required by the lender to prove the borrower will be able to repay the loan via remortgage or sale.
Valuation
Both the current and potential value of the property will be assessed to determine loan amounts and feasibility.
Be aware that for pub remortgage exits, your investment valuation will not increase until you have generated a years trading on the pub once it has been refurbished, so sometimes a 24 month bridge can be useful to allow you to complete the refurbishment and to obtain updated accounts in view of the upgraded interior and amenities.
No, Mortgage Lane works with lenders that don’t charge mortgage exit fees on fixed rate mortgages. This ensures that you won’t incur additional costs when you decide to pay off your mortgage early or refinance your loan. This makes managing your pub mortgage more straightforward and cost effective, providing financial flexibility when your business needs it.
Some lenders do however charge exit fees, so it is important to let your mortgage broker know if this is a requirement so it can be factored into sourcing your most suitable pub mortgage product.
As freehold pubs are owned outright, they are a preferable tenure compared to leasehold and will be easier to understand the valuation of the bricks and mortar. Freehold pubs are acceptable to most mortgage lenders and is therefore the most ideal type of pub purchase when it comes to funding.
Expect to pay a higher deposit than for residential mortgages, commercial mortgages are usually less generous. Typically, pub mortgage lenders require between 25% to 40% of the purchase price.
A pub mortgage lender might also require a detailed business plan, demonstrating the viability of the pub is crucial. This should include financial projections, market analysis, and your business strategy; if you already own pubs, details of your experience and existing trading might also be a strong element of this plan.
Lenders prefer applicants with experience in the hospitality industry. If you lack experience, partnering with an experienced manager or team can be beneficial, however, we also are able to obtain pub mortgages without experience, this will just increase the cost as it will reduce your options and might also impact the valuation of the property.
A strong credit history is essential. Lenders will scrutinise your credit report to assess your reliability in repaying the loan some lenders will also refer to other companies you own also for credit data which can also be used in underwriting for a lending decision.
You must provide proof of income, including tax returns, bank statements, and other financial documents. For an existing pub, past financial performance records are required to establish a valuation on the going concern rather than as a vacant asset.
Interest only
Borrowers pay only the interest during the term, with the principal repaid at the end.
Capital repayment
Borrowers pay both the interest and a portion of the principal during the term, reducing the loan balance over time.
When purchasing a pub with financing through Mortgage Lane, it’s essential to consider the following tax obligations.
Stamp duty is usually payable upon completion of the purchase unless the property value falls below the minimum threshold.
The funds for stamp duty cannot typically be borrowed from your mortgage lender and must be provided from your own capital.
On some pub purchases, VAT will be due on the purchase price. This VAT can often be reclaimed post-completion. For pub purchases where VAT is applicable, Mortgage Lane can usually provide a VAT loan for up to 100% of the VAT amount. This loan helps cover the VAT cost until it can be reclaimed, see our VAT bridging page here.
This is not tax advice and we do recommend you speak to a tax advisor when purchasing a pub.