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Pub mortgages: what you need to know

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By Pete Mugleston   Mortgage Advisor

Last updated: 10th June 2019 *

We often take queries from customers looking for guidance on taking out a pub mortgage to help them realise their dream of buying their own public house, so we’ve put together this comprehensive guide covering the key information you need about this subject.

In this article we will explore:

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Pub finance: the basics

The first question that many would-be publicans ask is ‘can you buy a pub with a mortgage?’

The simple answer is yes: there are numerous business mortgages available in this sector, and taking out a mortgage is an extremely common way of financing a pub purchase.

Depending on the business model your intended purchase falls into, you will need to take out a leasehold or freehold pub mortgage, and both are types of commercial loan.

What is the eligibility criteria for a business mortgage for a pub?

Buying and running a pub is about so much more than just bricks and mortar - you’ll also be taking on a business. So when you come to apply for a commercial mortgage to buy a pub, lenders will want to see evidence of more than just your ability to repay the loan and put down a deposit - they’ll want to be satisfied that you have the skills and experience to successfully run the pub, too, as well as a solid business plan.

Although pub mortgages, and indeed most commercial property mortgages, are assessed on a case-by-case basis, the majority of providers will base their lending decision on the following factors…

  • The loan to value (LTV) ratio
  • The borrower’s credit rating
  • The borrower’s industry experience
  • Affordability (based on the business’s operating performance)
  • The establishment’s previous trading accounts
  • It’s location (this will have a bearing on business levels)

How much experience will I need to take out a mortgage to buy a pub?

As with any other business or commercial loan, most lenders will want to see proof of relevant experience in the sector, usually at least 2-3 years trading history. However a few are willing to lend to start-ups and those with minimal experience, but may impose less favourable rates and higher deposit requirements. We recommend speaking to an expert to get the right advice, whatever your level of experience.

All lenders differ in what they consider to be ‘relevant experience’, and some may be happy to accept evidence of strong management skills in a field that isn’t immediately related to the hospitality trade if you can make a case for your transferable skills. Unfortunately, no lender is likely to count being a regular at your local boozer as a mark in your favour!

In addition to these specialist requirements you’ll need to meet the lender’s criteria for commercial borrowers, put down the required deposit and demonstrate that you can afford the repayments, just as with any property purchase.

What size deposit do I need for a pub business mortgage?

Since it’s necessary to take out a business mortgage for pubs, the rates and deposits required tend to be on the stricter side, ranging from around 30-45% depending on your experience and risk profile. Usually the more experience and success in the sector you can demonstrate, the lower the deposit required.

There are a few other factors that can have a bearing on deposit size:

  • Putting up an extra security (e.g. another property you own and hold sufficient equity in) can reduce your deposit to zero if you are prepared to take the risk on your other asset(s).
  • Owner-occupied pubs typically require a deposit of 30-40%
  • Commercial investment brings the figure to around 30%

Affordability: how much can I borrow?

For a commercial loan such as a mortgage for buying a pub, lenders will calculate affordability based primarily on previous trading accounts and detailed projections, which must be high enough to cover the cost of the loan and the interest payments. Some may allow you to declare any other legal income you have, to ensure that the mortgage is serviceable.

Projected income will be influenced by your proven track record in the industry, which is where your experience comes into play. The specialist lenders in this area look at your business’s earnings before interest, tax, depreciation and amortisation (EBITDA) to work out how much they can allow you to borrow.

All commercial lenders have their own policies on the size of loan they are willing to grant based on these factors, so it’s impossible to say exactly what you’ll be offered without consulting a range of providers. Their key consideration will be your ability to cover the mortgage payments each month.

Business Mortgage for pub: specialist or high street lender?

You may find there’s a difference between the way that specialist lenders calculate affordability for business loans compared with high street lenders and challenger banks that operate in this area so it’s always important to ensure you have a full market overview when researching lenders.

If you want an idea of what size of commercial mortgage you could qualify for, make an enquiry here and we’ll refer you to one of the experts we work with. All of them have a view of the entire market, so are ideally placed to advise you.

Can I get a commercial mortgage with credit issues?

Having a few blemishes on your credit record can affect lenders’ willingness to lend as each instance of bad credit increases your risk profile, but fortunately there are commercial mortgage providers out there who will consider borrowers in most circumstances.

Depending on the severity of the credit issues on your file, you may be offered less favourable rates and are likely to be turned away by some lenders. However there are some specialist commercial lenders that cater for those with various types of bad credit, so your best chance of finding the right deal is to speak to an expert with access to the whole market.

Don’t forget that both the business itself and the main shareholders or directors will have a credit file tracking payment history, so you will need to be clued up on your business partners’ credit issues as well as your own. Some lenders  will search the key individuals as well as the business when deciding whether or not to lend.

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

Provided you meet all the other criteria set by the lender, the answer is almost certainly yes: commercial lenders don’t generally set upper age limits and will tend to assess applications on a case-by-case basis. They do however almost all have a lower age limit of 18.

Are there different rules for larger commercial mortgages?

There aren’t usually any hard and fast limits on how much you can borrow on a commercial loan, as many of the same providers in this field also lend to huge businesses. You may even find that the rates on a larger loan - as long as you can meet the affordability criteria for one - are more favourable.

Where can I find a pub mortgage calculator?

There are a number of free commercial mortgage calculators and business loan calculators available around the web, such as this one from Experian. However, due to the complexity and the individual nature of each case, we strongly recommend using these tools for a very broad outline only of your expected repayments, and to take advice from an expert at the earliest opportunity.

What other pub finance solutions are there?

Mortgages are not the only means of raising finance to buy a pub. Alternatives you might want to consider could include:

  • Using equity from other properties/assets:
    If you own a portfolio of pubs or other commercial property, you may be able to unlock some of the capital held within it by releasing some of the equity to put towards your new pub purchase.
  • Bridging loans:
    You may want to opt for a commercial bridging loan if you need to close a deal on a pub purchase quickly (or on more flexible terms than a mortgage lender would be willing to offer) while waiting for your long term financing plan to materialise - find out more about bridging loans for businesses here.
  • Development finance:
    This is basically a staged loan to cover the purchase and development of a site. It can be an option if you have the means and expertise to build a pub yourself or are looking to make significant renovations on a public you’re planning to purchase. Most lenders offer eligible borrowers 70-75% of the purchase cost and 100% of the building funds (released in staged drawdowns). The payments are made to you in stages over a number of months or even years depending on the size of your project. You can read more about development finance here.

Speak to an expert on commercial mortgages today!

If you have questions related to financing a pub purchase and want to speak to an expert for the right advice, call Online Mortgage Advisor today on 0800 304 7880 or make an enquiry here.

The advisors we work with have access to the entire commercial mortgages market, and are ideally placed to point you in the right direction.

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: 10th June 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.