Commercial mortgage for bookseller to purchase freehold
We were approached by a broker whose client runs a small, independent chain of book shops. The bookseller was looking for finance to purchase the freehold of his latest shop which he had been renting on a short lease for a year to gauge demand in the area. The premises also included a 2-bed flat above the shop which is rented out.
He planned to fund the deposit using capital raised by remortgaging his home; however, he intended to apply for the commercial mortgage via the business. Despite the fact that some of his shops were trading more successfully than others, his accounts showed a small but growing income over the last three years across the whole chain. He is 53 years old and also has monthly income from a small pension – from a previous career.
The broker asked for our help as he felt he did not have the depth of experience required to place and negotiate the case with the most appropriate lender. Added to this, the client was keen to get the deal done as quickly as possible so as not to lose the purchase. Normally, the introducing broker would be the main liaison with the client, but this was waived in this instance and a reduced proc fee was agreed.
As we saw it, the case, although quite complicated was doable if we could put together a strong proposal and head off any potential sticking points. We identified the principle challenges to securing finance as:
The client’s age – the bookseller wanted the longest term possible to keep cash flow manageable. Most lenders prefer borrowers to be no older than 65 at the end of the mortgage term which meant that we needed to find a lender that could offer the client a 12-year term.
Fluctuating income from the different shops – some of the client’s bookshops were not performing consistently, so we needed a lender that would underwrite the business based on the total income from the entire chain rather than assessing the income from each individual shop.
The flat above the shop – the client wanted a lender to assess affordability excluding the rent from the flat in case he decided to live in it at some point in the future.
Finding a new lender – the client already has mortgage borrowing with a number of lenders (on his home and other shops) and was keen to find a new lender so as not to end up more beholden to one specific lender!
We identified a high street bank with which we have worked on similar cases. Initial discussions revealed the bank was interested and so we worked with the client to produce a strong proposal. A surveyor was booked to value the property and the business.
The valuation report came back fairly positive and didn’t identify any issues that we hadn’t already highlighted to the client ourselves.
The client was then invited to attend a loan interview with one of the lending managers. He opted to attend on his own, but we made sure he was fully prepared and confident that he could respond to any issues. A few days later, the bank issued a formal loan offer which the client was happy to accept.
We then managed the application through to completion which took just 35 days. Here are the details of the terms offered: