Pub Mortgage Basics

The British Public House

The British pub is a unique institution. Nevertheless, as we all know, individual pubs differ greatly, from small village pubs with old wooden beams, horse brasses, real ale, dominoes and dartboard to gastro-pubs decorated in minimalist style and huge modern ‘sheds’ with video screens, dance music and brightly coloured cocktails.

Just as the pub has evolved over time, so too, have the options for funding the purchase of a pub.

Brewery Loans

The traditional and most cost effective way of buying a pub used to be to borrow the money directly from a brewery. The publican would borrow the money, at a low rate of interest, usually over a 10-year period. In exchange, the publican would be contracted to buy all beer (and often wine, spirits and other drinks) direct from the brewer, at full price. 

Contemporary Business Model

As a result of consolidation (and overcapacity) within the brewing industry, coupled with a rising number of pub closures, many brewers have been forced to change their business model. They have sold off their tied pubs and instead offer large discounts for volume purchases of their popular beer brands to pub chains and independent landlords. This change has encouraged many publicans to replace their brewery loans with commercial mortgages, in order to be able to buy beer at lower prices and hence to improve their margins.

Brewery finance is still available in some cases, but nowadays interest rates tend to be closer to commercial offerings. However, some brewers offer a sliding scale where the rate of interest decreases if beer sales increase and certain predefined sales targets are reached. In reality, the costs of brewery loans for publicans tend only to be competitive for smaller loans. For larger loans, the licensed trade is increasingly turning to commercial mortgage providers.

Summary

• Brewery loans used to be the cheapest way of funding the purchase of a pub
• Changes within the brewing sector have encouraged many publicans to take out commercial mortgages rather than brewery loans
• Brewery finance may still be appropriate for small loans