Accountant’s SSAS pension given mortgage for new business premises

The sole director and shareholder of an accounting firm was looking to move premises in order to expand the business. He was hoping to use his Small Self-Administered Scheme pension, valued at £140,000, to buy the freehold of a warehouse for £170,000 on which he would then spend £40,000 (via SSAS) converting it into a two-storey office.

His business, the accounting firm, would then lease the building from his SSAS on a Full Repairing and Insuring (FRI) basis.

The director approached us for help in finding a lender that would accept his pension as the borrowing vehicle.

Although tightly regulated, SSASs can make commercial property investments and can borrow up to 50% of the value of a fund, which meant we were looking for finance of £70,000.

We approached a high street bank which we know has experience in this type of transaction.

Rightly, the lender viewed the case as a commercial investment rather than business owner-occupier transaction but because the two parties were linked, the bank agreed to waive the arrangement fee which it normally only offers on owner-occupier deals, thus saving the pension fund £1,050.

Here are the details of the terms offered:

Purchase price: £170,000

Loan amount: £70,000

LTV: 41%

Rate: 5.29% 10 years fixed

Term: 10 years capital & interest

Lender arrangement fee: Nil

Borrower: Client’s SSAS pension

Mortgage payment: £751 pcm

Rental income: £1,333 pcm (from the tenant - client’s accountancy business)

Gross yield: 9.5% pa

Consultant: Paul Keddy, 01732 471655