Guesthouses, holiday accommodation and temporary rentals are a growing business sector in the investment market, and there are lots of lending options and solutions available.
The Revolution Brokers team has created this guide to explain the essential factors to commercial mortgage lending for B&B businesses.
If you require bespoke advice or a competitive mortgage rate for a B&B property, give us a call on 0330 304 3040 or email at firstname.lastname@example.org.
Are There Commercial Mortgages for UK B&Bs?
Yes, bed and breakfasts are a mainstay of the UK tourism industry, as well as for business clients, and there are plenty of lending solutions out there.
Here we've summarised the main mortgage options for B&B businesses, but are always available to offer tailored recommendations.
Can I Get a Mortgage for a Bed and Breakfast Investment?
You can; some lenders specialise in hospitality properties, whereas others will offer general commercial mortgages, with the rates and terms depending on the size of the business and projected income.
Are B&B Businesses Best Mortgaged as a Residence or a Business?
This is a common query, since B&B owners nearly always live on-site, and don't know whether to apply for a residential mortgage to buy a property or to secure commercial lending to invest in a new business.
In this situation, a commercial mortgage is the most appropriate, since when you buy a bed and breakfast, you are financing a business rather than a private residence.
It can be confusing, but the line in the sand usually relies on the volume of the floor space you use as your home, and what proportion comprises guest accommodation.
For example, suppose you live in over 40% of the property. In that case, you can apply for a residential mortgage; however, if your living quarters comprise less than 40% of the total residence, then you should apply for a commercial mortgage.
Sometimes, the situation isn't quite so simple, and you might decide that a semi-commercial mortgage is a more convenient solution - but much depends on your specific circumstances, and the property in question.
Does it Matter What Sort of Mortgage I Get for a Bed and Breakfast Business?
It matters a lot - although choosing the incorrect mortgage type is fairly common given the confusion around a blended property with both business applications and used as a private residence.
The problem here is that residential mortgages charge lower interest rates than commercial lending. If you mortgage a B&B business as a residence, and the mortgage lender is unaware that the property is a company, they might demand a full and immediate repayment on the complete mortgage balance.
This sort of situation can cause severe credit rating issues and a significant amount of stress.
Therefore, it is essential to seek support from an experienced independent broker who can ensure you have precisely the right sort of lending, with the most competitive rates available.
How Do I Apply for a Guest House Commercial Mortgage?
Many UK investors choose a guesthouse or B&B as a retirement investment, or as a pursuit during semi-retirement.
Whenever you decide to mortgage a business property, contacting your broker is the first step to getting an application filed.
What are the Assessment Criteria for Bed and Breakfast Mortgage?
One of the key factors is whether you have experience in running a B&B business, and the more of a track record you have, the better the position.
Lenders will also verify whether you have licensing and permissions to run the business. If you are an investor and will be appointing a manager to handle the day-to-day, a mortgage lender will usually ask for their experience and qualifications.
New investors can also secure specialist lending for new businesses, in which case an expert hospitality sector broker such as the Revolution team is invaluable in negotiating the lending terms on your behalf.
In most cases, a mortgage provider will ask for your business plan, details of what the funding will be used for, and marketing plans, including occupancy rate predictions.
Can I Get a B&B Commercial Mortgage Without Prior Experience?
Mainstream lenders always prefer to see applications with two or three years of relevant experience in any industry. However, niche lenders are happy to consider applications from new investors.
As a new investor in a guest house business that hadn't been performing well, then a lender will ask to see your plans, and how the financing will turn around the fortunes of the company.
What Deposit Is Required for Bed and Breakfast Mortgage Lending?
In line with most commercial mortgages, the majority of lenders will ask for a deposit from 20% up to 40%, depending on the risk profile and how closely you meet other lending criteria.
If you have a good trading history, plenty of experience, a lucrative location and a healthy business plan, you can achieve a higher Loan to Value ratio, and often more competitive commercial mortgage rates.
Are There Alternatives to a Commercial Mortgage for B&B Financing?
There are, and as with all businesses, you have multiple options when it comes to borrowing against the business.
- Unsecured business loans are ideal for lower value loans of £25,00 or less. These usually require zero deposit, although the interest rates will be higher and the terms shorter.
- Bridging lending - a short-term form of financing running for one to three years, bridging loans are perfect for fast investments, such as buying a B&B business at auction. The key is to have an exit strategy to back up the application, such as a plan to remortgage or sell the company at the end of the term.
- Development loans. If you are considering buying a B&B to renovate, or a refurbishment of an existing investment, then development finance might be the best bet. Development funding is released in stages throughout the build or conversion, with interest only payable on the funds drawn down so far.
- Equity release - another option is to leverage other business assets or portfolio properties to raise capital for a B&B investment, purchase or renovation.
Can I Refinance a Guest House If I Have Bad Credit?
Any financing with a bad credit history is more complicated, but it all relies on other criteria, and when and why the adverse credit issues occurred.
Most commercial mortgage lenders aren't as focused on credit ratings as residential providers but tend to offer the lowest rates to businesses with a healthy credit score.
How a UK Expert Broker Can Help with B&B Mortgage Finance
As a commercial lending specialist, the Revolution Brokers team is on hand to recommend the most efficient borrowing for your B&B business, with the experience to negotiate favourable rates and terms on your behalf.
Contact us on 0330 304 3040 or via email at email@example.com for independent advice about the best funding solutions for your guesthouse property.