We were contacted by a broker looking for help in sourcing finance for his clients, a married couple wanting to remortgage their purpose-built, seven-bedroom guest lodge in the Scottish Highlands.
The couple had built the timber lodge just over a decade ago using a self-build loan, then refinanced it onto a residential mortgage. They then spent the next 10 years living and working in the property, letting out six rooms to paying guests.
Having run the lodge for nearly a decade, the couple decided to wind down the business in preparation for selling it as a private residence. Unfortunately, they were not successful in securing a sale and so started to rebuild the business.
With their mortgage term nearing its end, they approached their lender with a view to extending the loan or remortgaging onto another residential rate. The lender refused on the grounds that the property was being used primarily for commercial purposes, so the couple got in touch with a broker for help.
Having no experience in commercial transactions, the broker approached us for help in finding a suitable solution for his clients.
Even though the clients needed only a relatively small mortgage of 21% loan to value, our challenge would be to find a commercial lender which would accept:
- A property in the Scottish Highlands
- The timber frame construction of the property
- A year’s worth of poor trading figures (from when the couple were winding down the business)
Another concern we had was the large space that the clients’ private living quarters took up in the property. In our estimation, the space occupied around 40% of the total lodge. If the valuing surveyor were to calculate more than 40%, we knew that many providers would not lend.
We approached a bank which specialises in lending to SMEs and started negotiations. The bank instructed its surveyor to value the property and look into the space issue. The valuation report confirmed that the residential portion of the property could be restricted easily to part of one floor, less than 40% of the total area. We also demonstrated to the bank that the poor trading figures were simply an explainable blip, showed them more successful, historic accounts, and provided future income projections to confirm the lodge’s growth potential.
Impressed with the proposal, the lender agreed terms which the broker was delighted to convey to his clients.
Here are the details:
Property value: £450,000
Loan amount: £95,000
Rate: Bank Rate (currently 0.25%) plus 5.75% (currently 6%)
Term: 13 years: 5 years interest only followed by 8 years capital and interest repayment
Mortgage payment: At current Bank Rate:£475 pcm for the first 5 years followed by £1,248 pcm for the remaining 8 years.
Lender arrangement fee: £1,900 (2%)
Consultant: Andy Elley, 01732 471644
23rd March 2017