Is it a strategic business move? Will you be accepted for finance? How much will you be able to borrow? Paul Keddy, consultant mortgage broker explains…
Believe it or not, this type of enquiry is something we see on a daily basis. In my opinion, this is an opportunity not to be missed out on. For one – monthly rental payments will cease. Instead, you will own the property and have a commercial mortgage in place. The old adage “in the long term it is better to buy than rent” springs to mind.
Not only this, but as the property owner you can now decorate, upgrade, develop the property in ways you may not have been able to as the tenant!
And don’t just take my word for it… here’s what one of our clients had to say about their move to ownership:
“Since we have purchased the freehold of our site we have been able to reinvest the money into the business, not only where we are saving substantial money in the difference between our rent and our current mortgage payment. We also had a large amount of working capital left over as we achieved a 99 % LTV against the purchase. We were then able to do a full external refurbishment and increase our turnover drastically, in turn, increasing our net profit.
Due to purchasing the freehold, you can do all the things that as a tenant you question is it for your own benefit or your landlords. When you own the freehold you can develop your business in ways that you don’t even know exist.
We took out our mortgage on a 25 year term and have ended up in a position whereby we could have cleared it in 2 years. I strongly recommend to any sitting tenants to contact MFB immediately as they can truly get money lent against your trading businesses” Oliver Milenkovic
The good news is that obtaining finance for this type of transaction is generally straight forward. Most lenders look favourably at long-standing tenants who have been running a successful business, after all – the applicant has a track record in the industry, is familiar with the property and has business performance records to support the loan.
Many of our clients looking to purchase the freehold of the premises also have significant goodwill attributed to their leasehold interest. You may be interested to know that it is possible to bring the goodwill into the overall value of the trading business and in some cases borrow up to 100% of the purchase price.
Making the purchase
Our clients generally go down one of two routes:
Option one: Purchase the freehold in their trading limited company name
Option two: Purchase the freehold in their individual name/partnership name with an operating lease set up between the purchasing vehicle and the trading company. e.g. the trading company pays rental income back to the individual/partnership to cover mortgage payments
There are pros for both options, it really depends on your individual circumstances. Purchasing via your trading limited company will have a positive impact on the value of your business. If you were to sell the business on you may be able to achieve a higher sale value as your business has an asset.
Purchasing individually or via a partnership means that the asset can be separated from the business and held personally for future investment, or even as part of a pension plan. Purchasing in this way means you can also charge your trading company a market rent for the purpose of trading from the freehold premises.
Rate and terms
There are no set rates and terms for a commercial mortgage, however, as a general rule we can obtain:
- 10 – 25 year terms
- Interest-only rates from 3.54% over LIBOR
- Capital and repayment mortgages from 2.5% over Bank Rate
- Arrangement fees from 0%
- Borrowing up to 100% of the purchase price (with supporting security/goodwill)
Examples of how we've helped our clients in the past:
ANY PROPERTY USED AS SECURITY, WHICH MAY INCLUDE YOUR HOME, MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.