Bank funds purchase of village shop at 100% LTV

We were approached by three family members, father, mother and son looking to purchase the lease of a semi-commercial property from which to expand their retail business.

The family have 30 years’ experience of running an extremely successful village shop in Kent and wanted to duplicate the business model in a neighbouring Kent village with the son running the new shop.

Our challenge was to find a commercial lender which would:

  • Provide 100% finance - £270,000 for the premises plus £10,000 to stock the shop – a very big ask for many lenders

  • Accept the main applicant aged 67 – some lenders impose a maximum age of 70 at the end of the mortgage term

We took the case to a high street bank and after some negotiation obtained an agreement in principle based on:

  • The family’s longstanding retail business experience

  • Considerable profitability of the family’s existing shop, where they own the freehold of the building

  • A mortgage reduction of c£500,000 on their existing shop over a 10 year period

  • The additional income that could be generated from the flat above the shop.

Unfortunately, when the valuation report came back we were surprised to discover that the property had been down-valued by £130,000!

As extremely experienced retailers, this did not deter the family from wanting to continue with the purchase because they believed that there was room to increase the overall business turnover by c45% (helped by economies of scale when purchasing stock) thus increasing the leasehold value of the property.

They may also have the option to purchase the freehold interest in the near future.

Of course, the lender was keen to acquire further security before it would finance the deal, so the family agreed that the lender could take a second charge on their home.

Here are the details of the deal:

Leasehold shop value: £140,000

Supporting security: Second charge on the family home valued at £280,000

Loan amount: £280,000 (£270,000 for shop, £10,000 for stock)

LTV: 100%

Rate: 3.20% variable (Bank Rate + 2.70%)

Term: 10 years capital and interest

Lender arrangement fee: 1.5% (£4,200)

Mortgage payment: £2,700 pcm

Rental income (from flat above): £750 pcm

Gross yield: 6.4% pa

Consultant: Andy Elley, 01732 471644 

Consultant