How To Buy a Pub With a Mortgage

If you fancy becoming a landlord or landlady of a traditional pub and have found an available venue, there’s no reason why you can’t make your public house dream come true. You’d just need to apply for a mortgage to purchase such a business. Which mortgage might that be, and would you qualify?

This guide shares all you need to know and where to seek the right guidance and advice.

Can you get a mortgage to buy a pub?

Yes, but you would need a commercial mortgage rather than a residential mortgage to cover a purchase of this nature.

Not all lenders offer such commercial loans, and of those that do, they often have specifications around what kind of business they’re willing to lend to. A specialist commercial mortgage broker would be able to share which lenders they know to regularly offer this type of lending.

Before you apply, though, you’ll need to ascertain whether you’ll require a freehold pub mortgage or leasehold.

A leasehold pub mortgage

This is the most common arrangement in the UK and means that rather than purchasing the building the pub is situated in, you’d own the pub but only lease the premises. You’d still be responsible for maintaining the property and the pub.

Still, the leasehold wouldn’t be indefinite – a typical leasehold is between 10 and 25 years – and you may be contractually obliged to buy your stock from a specific brewery.

A freehold pub mortgage

Via this model, you’d own the pub and the property outright. You’d be able to purchase alcohol from wherever you’d like and own the business indefinitely. The caveat is that owning the entirety of the pub means paying more to purchase it.

How to get a pub mortgage

Regardless of which type of mortgage you opt for, you’ll need to go through the below steps:

Step 1. Get the paperwork together and create a business plan.

Commercial finance requires a lot of paperwork, and before submitting an application to a mortgage provider, it’s important to ensure you have all the required documents.

This means working through the business’ trading accounts to get an idea of its earning potential, ensuring you have all the necessary licences, crafting a strong business plan that shows the potential for a profit and putting together realistic income projections.

Step 2. Connect with a commercial broker.

Next, take this paperwork to a broker specialising in pub mortgages. They’ll be able to assess your numbers and business plan, discuss the viability of your application, and advise on how it might be approved.

They will also be able to identify the right lenders who can best offer the mortgage you need to complete the purchase.

If you get in touch, we’ll arrange for a commercial mortgage broker we work with who specialises in these types of businesses to contact you straight away.

Step 3. Apply to a lender best suited to your situation.

Many lenders offer commercial mortgages but not all will approve finance for this type of business.

A specialist broker will be able to share, based on their experience, which lender is more likely to approve your application and provide information on any specific nuances within the lender’s criteria.

Eligibility Criteria

Like with any mortgage, lenders will be assessing your application and looking at specific factors such as:

• Whether you have a solid business plan: This should include projected earnings and a cost budget, especially if the earnings don’t quite cover repayments.
• What level of experience do you have in the hospitality sector? Most lenders will seek evidence that you have 2-3 years of experience running a pub or another type of business. Others will waive such a requirement in place of a higher deposit or interest rate.
• Whether you have the necessary licences, including a personal and a premises licence, any others that can bolster experience, such as an NIIA level 2 Award for Personal Licence Holders, would also help to support an application.
• What the pub’s previous trading accounts look like The focus will be on earnings before interest, tax, depreciation, and amortisation.
• The property’s location: This is examined in terms of how it may affect business.
• Credit history: This includes that of any business partners and that of the business itself.
• Debt: Again, this applies to your business partners and the business.
• Affordability: The affordability of a residential mortgage is usually based on an applicant’s income, but when it comes to a business mortgage, it’s based on the business’s operating performance.

The good news is lenders assess each commercial loan application individually, which means there’s slightly more flexibility than you might find with other mortgage types.

Deposit requirements

As with most business mortgages, deposit requirements tend to be slightly higher than those for a residential mortgage, typically between 30% and 45%.

Suppose you have more experience in hospitality and a proven track record of successfully running a pub or another relevant type of business. In that case, there’s a chance a lender might accept a lower deposit.

Typical interest rates and repayments

Generally, commercial mortgage rates range between 3.5% and 6%. Your placement in that bracket will depend on how risky a lender believes you to be. Putting up a bigger deposit and improving your credit score might help you get a lower rate and keep the cost of your mortgage down.

You can use the below calculator to insert the amount you want to borrow and then alter the interest rate to see how much the monthly mortgage repayments could be.

Other finance options to consider

A commercial mortgage isn’t the only form of financing you can use to buy a pub.

Some other options include:

• Releasing equity from other properties: If you already own a home, another pub or another business altogether, you could consider talking to your current lender about releasing some of the capital within those properties to help in buying this new pub.
• Taking out a commercial bridging loan: This is a form of short-term financing that comes with a higher interest rate but is a good solution if you need to make the purchase quickly and have a longer-term financing solution coming through.
• Development finance: Rather than buying a pub that’s already established, this would be a good option should you be planning to buy a site and then build a pub or renovate an existing one. The loan is delivered in instalments and would likely cover 70%-75% of the upfront costs and 100% of the building fees. You’d likely need to have experience in taking on such a project to qualify for this type of loan.

Speak to a pub mortgage specialist

If you think a commercial mortgage for a pub is the right route for you, don’t pursue it alone. The specialist brokers we work with have experience purchasing pubs for many different people up and down the country and would be able to use that experience to get you a deal that’s ideal for your circumstances and likely better than you might find alone.

Call us today at 0330 818 7026 or fill out our online form, and we’ll set up a free consultation with a broker best suited to your needs.