Complex Commercial Owner-Occupier Purchase
The Client: An experienced residential buy to let landlord, our client also had their own trading company. Having paid rent on a premises for years, she had the opportunity to purchase the property and swap rent payments for mortgage payments.
The Property: A three-story commercial building in a large industrial estate in the South-East. While our client occupied one-third of the property, the other two-thirds were let out to other businesses and would therefore provide a rental income.
The Finance: Our client required a commercial mortgage in order to purchase the property. Their deposit comprised of business savings and some gifted funds to reduce the LTV. She wanted to purchase the property into a limited company set up for property investment and let it out to her trading company.
Due to the nature of the sale, our client needed to pay VAT on the purchase too, so we’d also need to organise a short-term VAT loan to complete the purchase. The VAT loan would be repaid in full the next time our client did their VAT return.
The Challenge: As most of the property would be let out to third party businesses, most lenders would treat this purchase as a commercial investment. Unfortunately, commercial investment mortgages tend to attract higher interest rates than commercial owner-occupier mortgages, and the criteria are noticeably stricter (especially in the post-COVID climate). Wanting to keep costs down, our client wanted an owner-occupier mortgage.
As is usual with this type of deal, the affordability of the finance is based on the trading company’s finances, as that is the business essentially servicing the mortgage. In order to secure an owner-occupier mortgage, we wouldn’t be able to take into account rental income from the other two-thirds of the property, which meant our clients trading company would have to be able to service the mortgage repayments comfortably. Having looked at the finances for both our client and the trading business, we realised that they drew quite a lot of the profits down as salary. In order to improve serviceability, we’d need to see whether there was a way to minimise how much our client took as salary.
We’d also need to find a lender that was comfortable with the part-gifted deposit as it would require additional due diligence to verify the source of the funds.
The Solution: Using our extensive knowledge of the commercial owner-occupier mortgage market, we approached a lender we’d worked with before on similar deals. Having worked with the client to ascertain how much they needed to withdraw from the business to cover their personal expenses, we’d managed to increase the amount of monthly profits. Based on the improved serviceability, the strength of the business trading record and low loan to value requirement, the lender was comfortable approving an owner-occupier mortgage. They also approved the VAT loan, which would be repaid immediately after the next VAT return. Here are the details: