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What is a commercial mortgage for pubs?
A commercial mortgage for pubs is a loan secured against the freehold of a pub so this could be one that you own or one you are planning to now buy. It may be that you plan on using the pub yourself to run your own business serving food and drink to the public or plan to own the building and just be the landlord looking for another person or company that will run the pub daily with yourself just collecting the rent.
Unless you have the all of the funding to buy the pub without a mortgage, you may want a pub commercial mortgage to bridge the gap between what you can afford to pay and the purchase price of the freehold.
If you are looking to purchase a pub, you would find Businesses For Sale website useful.
For more information about what it’s like running a pub, here is a useful resource from Greene King.
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Why take a commercial mortgage for pubs?
There are many reasons that you may need to take a mortgage for your pub. It may be that you are buying the freehold and cannot come up with enough money yourself to successfully complete on the transaction.
Another reason for taking a pub commercial mortgage is you may have enough for the purchase of the freehold building but want to hold back some of your money to pay for essential improvements to the building or leave reserves in your bank account so you have money left after completion for unexpected events or to help with finance such as cash flow if running the pub business yourself.
It may be that you already own the freehold of the pub and wish to raise money against the property to carry out improvements needed to the pub or already have a pub commercial mortgage and wish to refinance the freehold of the pub to a mortgage that is more suited to your situation, e.g. with a longer term or lower interest rate so the monthly payments are more affordable.
Is a pub commercial mortgage the same as a regular commercial mortgage?
In reality, there is no real difference except a commercial mortgage for a pub is secured against the freehold of the pub where that same lender or product may not have allowed a different type of commercial property when lending to you.
In terms of rates, fees and the terms of the mortgage, they may be different to other types of commercial properties too (e.g. a block of flats) and the terms of the mortgage have been designed to fit that of a pub.
What size deposit will I need when buying a pub using a pub commercial mortgage?
The size of the deposit will differ from lender to lender and it may also depend on your individual scenario, the building, the history of you as an applicant etc. Commercial mortgages are usually quite bespoke so the lender needs a full understanding of the individual situation before agreeing to lend.
You should expect to put down a minimum deposit of approximately 25- 30% when taking pub commercial finance but this would be advised by a professional commercial mortgage broker when they assess your scenario to give you individual advice.
I plan to live above the pub, will it still need a commercial mortgage or could I get a residential mortgage against it?
Due to it being a trading business and the footfall of the public within the building all day, serving alcohol in house, likely food, with staff etc, it would need a commercial mortgage. You would need to tell the lender that you plan to occupy it as your main residence and this may affect which lender you can use but it would not qualify for a standard residential mortgage.
What does the lender look at when applying for a pub commercial mortgage?
When lenders assess your application to decide if they would consider lending to you on a freehold pub, they will be looking at a range of different things. These will include some of the following:
- If your pub business is already up and going, how is it performing? Is it making a profit each year? How much food and drink do you sell each year? When are your busy periods? Is it seasonal?
- What are the applicant’s experience if buying the freehold of the pub to run the day to day business themselves? Like a commercial mortgage against any property, lenders need to be confident that the business will be a success so they can get paid monthly. Knowing the background of the applicant, whether they have bad credit and why they are in a position to successfully run the business will be essential.
- The location of the pub, local attractions around it and any other important factors that may change things going forward. For example, if a pub located nearby a busy attraction such as a football ground has had past success due to the proximity with people visiting after each game but the football ground is now moving, will this affect the profit of the pub and put it in a position where it may not be able to pay the mortgage. All factors will need to be looked at.
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Who are the pub mortgage lenders?
The lender for a pub will usually be a commercial bank. This may be a high street one that you have a bank account with and the commercial arm of it or a private bank / Specialist Lender that can lend against freehold pubs. Who ultimately lends will depend upon the individual situation utilising their lending calculator.
It is not impossible that your own bank offers commercial mortgages for pubs but bear in mind, if they do and you decide to simply take their offer, you are not getting options from the full market like you would if you liaise with a commercial mortgage broker who has access to a wide range of lenders.
Do you get pub mortgage brokers?
There are mortgage brokers that specialise in commercial transactions with freehold pub experience and these are the best people to talk to if you are planning to buy or refinance a pub.
Brokers such as this are working with commercial lenders every day so they get a better idea of which lenders are taking on certain scenarios, certain types of pubs, locations etc. These brokers will work with you to find out the details of the building, the numbers behind the business, the experience of the people involved, their credit histories and the objectives to then calculate and find the most suitable commercial mortgage.
Pub commercial mortgages are a complex area so speaking to a professional commercial mortgage broker is always advised. I NEED ADVICE can put you in touch with a pub commercial mortgage broker for a free consultation if you complete the contact form.
What are the pub mortgage rates?
It is difficult to say as the rates and fees will be tailored to the individual scenario. They are different to residential mortgages as they are considered higher risk and as a result, commercial mortgages tend to be at a higher rate than residential mortgages.
Rates are sometimes linked to the Bank Of England base rate although fixed ones, along with variable exist too depending on the lender. If you speak with a pub mortgage broker, they can give you confirmation of products that may be available for your situation as the have access to sourcing and calculator tools.
Can I use a bridging loan to buy a pub?
Commercial bridging loans can be used for buying the freehold of a pub. With a bridging loan, the lender will want confirmation of your exit strategy to come out of the bridging loan at the end of the term.
Staying on a bridging loan can cause big financial issues so serious thought needs to be taken before entering one and you should always take advice from a professional.
It may be the situation that you plan to repay the loan by remortgaging the freehold to a commercial term mortgage, sell the freehold of the pub within 12 months (for example if you believe you are getting the building under value) or sale of another property to pay off the loan.
Would I get a buy to let mortgage to buy a pub?
No, you would not get a standard buy to let mortgage to buy a pub freehold but you may get a commercial mortgage for pubs on the basis that you are buying the pub to become the landlord of it and letting it to another person or company that will run it daily and pay you rent.
The terms of mortgages may be different to a mortgage for a pub that you planned to run yourself and the lender would need to know about the tenant going in and financially underwrite them too.
They ultimately will be the people bringing in the money to pay you rent. If this is not being paid and this leads to the mortgage not being paid too, this could result in repossession of the pub.
Can I get development finance to build a pub?
Development finance can be used to build the freehold of a pub but this is a specialist area. If you are builder with land planning to build a brand new pub, there are development lenders that can release the funds over stages allowing you to pay for the construction of the building.
They would need to know your experience in building, the GDV of the pub and have security for the loan, which may be the land or spread over other assets too if applicable. Similar to the bridging loans, they would need to know the exit strategy for repaying the finance when the term ends. The term for development finance term is usually 12 – 24 months but a development finance broker would be able confirm this with you.
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If you are planning to buy or refinance the freehold of a pub, a commercial mortgage for pubs may be the answer.
These mortgages will be bespoke to you and your situation and the lender will want to know the full situation before agreeing to lend.
Getting advice from an experienced professional should always be priority when looking to take a commercial mortgage.
To speak with an experienced pub mortgage broker, fill in the contact box and I NEED ADVICE will arrange for somebody to reach out to give you the advice that you need.