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Charity Mortgages and Church Finance

A guide to mortgages for charity organisations including churches

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By Pete Mugleston  | Mortgage Advisor Pete has been a mortgage advisor for over 10 years, and is regularly cited in both trade and national press.

Updated: 9th October 2019 *

Are you looking to set up a church or other charitable organisation in the UK? Or perhaps you’re a member of an existing charity organisation seeking a new base of operations?

We regularly hear from individuals and organisations seeking a charity mortgage to finance projects of this type, so whatever your circumstances, we can quickly match you with an advisor who has the necessary experience to help you navigate this specialist field. 

But to help you get started, we’ve put together this article to cover the essentials on commercial mortgages for charities, including:

We appreciate that churches and charities occupy a unique position when it comes to financing, so it’s always advisable to work with a specialist broker to help you find the most suitable products. Call us on 0808 189 2301 or make an enquiry and we’ll put you in touch with someone shortly. 

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Mortgages for charities and churches: the basics

The first thing to know about mortgages for charity organisations and churches is that they are a type of commercial mortgage, so they differ in several respects from the more familiar residential mortgages. They are often available on standard terms from high street lenders (i.e. with similar rates and deposit requirements to regular commercial mortgages).

Lenders view both churches and other charities seeking finance as businesses, so the responsibility is on the prospective borrower to demonstrate their ability to repay the loan based on factors such as the organisation’s business plan, fundraising efforts, location and history, although many lenders offer flexibility in this sector.

What deposit is needed for church mortgage financing?

Most lenders require a deposit of at least 25% for a commercial mortgage for churches and charities, and some will ask for as much as 40% or more depending on the perceived level of risk. A few will accept a deposit of 20% in the right circumstances. 

In other words, you can only borrow up to 80% of the value of the property and your organisation needs to pay the remainder up front.

In some cases, it may be possible to increase the loan to value (LTV) ratio by putting up extra security such as another property or asset you own and hold equity in. However, this carries more risk for the borrower, so it’s always worth speaking to an expert to find out if there are any such solutions to help you realise your vision. 

What commercial mortgage can I afford for my church or charity?

Commercial mortgage providers establish how much you can afford to borrow by carrying out an assessment of your income, outgoings and funding sources, and you’ll need to be able to satisfy the lender that the loan is serviceable. In other words, that your charity or church can afford the repayments you’re signing up for.

For any business, this exercise may be a bit more complicated than simply demonstrating income, because the business is an integral part of the income stream itself. And when it’s a church or a charity, proving that income stream can be even harder due to these organisations’ uniquely high reliance on grants, fundraising and charitable giving.

Some lenders will also allow you to include other income that is not related to the proposed church or charity in their calculations such as employment income from other sources, so it’s worth speaking to as many lenders as possible in order to reach an agreement on how best to finance the project. To save time, the experts we work with can do all this leg work for you. Get in touch to find out more. 

Your organisation will be in a stronger position if it has already been established and receiving regular funds for a number of years. Also, if the property you are purchasing is already being used as a church with an existing congregation, it will be much easier to prove its value to the lender than if you are moving to a completely new site. 

Commercial mortgage rates for churches and charity mortgages

Commercial mortgage rates are harder to pin down than the rates offered for residential property as each business is carefully assessed on a case-by-case basis. However, they are typically higher than residential rates.

In order to qualify for rates at the lower end of the scale, certain factors will work in your favour, for example:

  • Clean credit record for all applicants (see section below on ‘bad credit’).
  • Evidence of successfully running a church or charity, ideally for 3 years or more
  • Being located in an area with a strong, established congregation (for churches).
  • Having a business plan that shows a clear vision and fundraising strategy covering the past, present and future of your organisation. 
  • Being able to put down a larger deposit or additional security.

The more of the above qualities you can demonstrate, the better your chances of being offered a lower interest rate. 

Church mortgage lenders in the UK

Finding a lender willing to offer favourable rates on a charity or church mortgage can be a challenge, especially if your ability to repay the loan relies heavily on the goodwill of others, so many charitable organisations choose to approach a specialist provider with experience of dealing in this type of finance. 

Different types of lender calculate affordability differently and will have varying appetites for risk. For example, many providers that deal exclusively with churches and charities pride themselves on being more in tune with the unique needs of these organisations, and some are even founded on Christian principles. However, these are still businesses at their core, so don’t expect miracles if you don’t have a solid business plan!

It’s worth keeping an open mind when it comes to choosing your lender, and you may find that high street or challenger banks offer competitive rates at the time of your application. The landscape is constantly evolving, so it’s always worth consulting an advisor with an overview of the entire market: call us on 0808 189 2301 or make an enquiry if you’d like to explore all the options.

How to finance a church purchase if you have bad credit

If you or any of your business associates have a less than spotless credit history, you might be worried about how this could affect your chances of being approved for a commercial mortgage. Instances of ‘bad credit’ will usually have a bearing on your overall risk profile and impact the number of lenders that will consider you, but fortunately, there are mortgage providers that will still agree to lend in most circumstances. 

What this could mean for you and your business is that you might be required to put up a larger deposit or commit to paying higher interest rates than an applicant with a completely clean credit record, and in extreme cases, additional security may be required. But remember, your credit history will be viewed in the round along with factors such as your trading history, and the offer will be based on an assessment of the full picture. 

If you’ve already been turned away by lenders or are concerned that you might be, the advisors we work with can put you in touch with commercial lenders that are used to catering for customers with adverse credit, so make an enquiry if you would like some expert advice on where to apply. 

Can I get a commercial mortgage on a church building after retirement or in later life?

As long as you otherwise meet the lender’s criteria, the answer is almost certainly yes. Business lenders, even for churches and charities, don’t tend to impose an upper age limit, but they will almost certainly have a lower age limit of 18 years. 

Are the rules any different for larger commercial mortgages?

Church buildings can be unique and worth a vast amount of money, so the good news here is that there are no hard and fast limitations on the amount you can mortgage them for. You might even find that interest rates on a bigger loan are lower. 

Where can I find a church mortgage calculator?

Due to the small size of the market, we are not aware of any specialist mortgage calculator for churches or charities. However, there are numerous commercial mortgage calculators available on the web, which can give you a rough idea of what you might be able to borrow. Though we always recommend speaking to an expert to get a more realistic picture.

Speak to an expert on commercial mortgages for churches and charities today!

If you’re looking to take out a mortgage for a church or charity and want to speak to an expert in this niche market, call Online Mortgage Advisor today on 0808 189 2301 or make an enquiry. The specialists we work with are whole of market including the charity sector, and are ideally placed to help you realise your vision. 

Then sit back and let us do all the hard work in finding the broker with the right expertise for your circumstances. We don’t charge a fee and there’s absolutely no obligation or marks on your credit rating.

Updated: 9th October 2019
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FCA disclaimer

*Based on our research, the content contained in this article is accurate as of most recent time of writing. Lender criteria and policies change regularly so speak to one of the advisors we work with to confirm the most accurate up to date information. The info on the site is not tailored advice to each individual reader, and as such does not constitute financial advice. All advisors working with us are fully qualified to provide mortgage advice and work only for firms who are authorised and regulated by the Financial Conduct Authority. They will offer any advice specific to you and your needs. Some types of buy to let mortgages are not regulated by the FCA. Think carefully before securing other debts against your home. As a mortgage is secured against your home, it may be repossessed if you do not keep up with repayments on your mortgage. Equity released from your home will also be secured against it.