Bed & Breakfast Mortgages - FAQ

Can I get a guest house mortgage?

Most people should be able to obtain a mortgage on a guest house or bed and breakfast business. Lenders will want to be satisfied that you are creditworthy, that the business can support itself and any mortgage payments and that the property being mortgaged provides acceptable security for a loan. You should remember that your property is at risk if you fail to maintain payments against a mortgage or any loan secured against it. This is especially important if the property is to also be your home.

How much deposit will I need?

Different lenders have different rules but we would generally expect most lenders to require between 25% and 30% of the purchase price of the property to be provided by you. Some lenders will offer up to 100% if additional property can be provided as security.

How much can I borrow?

A lender will need to be satisfied that the business will make enough money to be able to pay the mortgage installments after allowing for your own livelihood and any potential changes in interest rates.

How much will it cost?

Rates vary with lender and personal circumstances but are generally between teen 3.5% and 4.5% above the current bank base rate mortgage term.

What charges can I expect?

There are of course charges that you must consider when entering into a commitment to purchase a property. Payment will generally be required before or upon completion of your purchase so you will need to be sure that the money is available before completion. These costs are:

• A commitment/application fee – lenders and brokers may ask you to pay a fee upon application to cover any costs that might be incurred during the process. Access Commercial will normally charge £300 as a commitment fee which will be refunded by deduction from their broker fee at completion.
• A valuation fee – this will be charged by the lender or sometimes by the surveyor and will usually vary depending on the value of the property.
• Legal Fees – you will need to pay your own solicitor and the lender’s solicitor. Sometimes lender’s solicitors will offer a discount if their firm works for both you and the lender. Lenders may insist that your solicitor’s firm is of a certain size (usually a minimum of 2 partners) and we strongly recommend that you employ a solicitor with specific expertise in commercial conveyancing to avoid any delays with the process.
• Stamp Duty – this will vary depending on the purchase price of the property. Click here for current fees.
• Lender fee – this may be anything up to 2% of the sum borrowed and will normally be added to the advance. Not all lenders will charge a fee.
• Broker Fee – this is the fee we would charge for arranging the loan. We usually charge 1% of the advance which becomes due when a mortgage offer is produced (although this is not normally paid until completion).
• Value Added Tax (VAT) – although rare in guest house purchases, VAT is not considered as part of the value of the property but must be paid on completion.
• Other Costs – other unusual costs may exist not included above, we will try where possible to identify them at the enquiry process.

How does the application process work?

The Enquiry – you will be asked a number of simple questions so that we can understand the business and your intentions. Amongst other information we will need to know the following:

• The purchase price of the property.
• The amount of money that you have available for a deposit.
• The most recent net profit of the business.
• Details of any additional income that will be supporting your lifestyle such as other full or part-time employment, or pensions.
• Details of any relevant experience you have in running this type of business.

From this we will prepare an indicative illustration of costs based on our understanding of your situation and our knowledge of the lending marketplace. Please note that this is merely an illustration and may change when the application pack is received.

The application and submission for decision in principle.

We will ask you to complete an application form and to supply personal financial information plus any specific information that may apply as a result of our enquiry conversation. This will form the basis of our report to Lenders from which an agreement in principle can be given. This agreement is subject to the valuation of the property and to the lenders final checks.

Facility (offer) letter

Once the valuation has been approved a formal letter will be issued detailing the terms that the lender will apply in lending you the mortgage funds. At his point, or shortly thereafter, legal documents will be issued to your solicitor who can then arrange exchange of contracts and completion.

How long will the process take?

In theory the process is not a long one, but in practice there are many factors which can cause a delay. The main area of potential delay is the legal process and here it is very important that you choose a solicitor who is experienced in commercial conveyancing.