This information should not be interpreted as financial, tax or legal advice. Mortgage and loan rates are subject to change.
Categories: Case study | buy to let mortgages | commercial mortgages
It is common knowledge that investing in property is one of the most expensive things most of us will do in life, whether that is buying your own home or an investment property.
A lot of people will ask our mortgage advisors, “Can I buy property with no deposit”. The answer is YES!
In this case study we take a look at a client investing in commercial property, but, you can also use this solution for a buy to let mortgage on a residential rental property.
The case
Investment route: Limited company.
The existing portfolio: None.
The property: Commercial premises.
The tenancy arrangement: Property to be let to clients trading limited company.
The borrowing requirement
The clients were first time landlords with no commercial experience, they did own their own home but did not own any investment properties. They were looking to invest in a commercial premises, to operate a business they had been running for the past year from.
Most significantly, they wanted a 100% commercial mortgage borrowing – meaning they wanted to borrow the full value of the property from a lender.
The challenges we overcame
Firstly, the fact that the clients did not want to put down any deposit at all would commonly mean there is no borrowing solution.
What’s more, where investing in commercial premises, most lenders will either look for industry experience in business being run from the property (2-3 years trading accounts), if an applicant is buying as an owner occupier; or experience in letting out/managing a commercial premises (1-2 years), if the applicant is going down the investment-only route.
The fact that this could be overcome on both counts is exceptional, so how did we achieve this?
Happily a lender solution exists to help in exactly this scenario.
The clients owned their own home, albeit with a residential mortgage in place. This was critical to making the borrowing solution they needed work.
The equity in the client’s home was generous. They owned a significant amount of the property, versus the amount their residential mortgage covered. This allowed a charge to be placed against their residential property, to cover the amount that would normally be required as a deposit on the commercial mortgage they needed.
In this case, the lender offered the applicants one mortgage, with a first charge of 70% loan to value (the maximum possible on a commercial mortgage) on the commercial premises they were buying, and a second charge of 30% on their residential home.
If the scenario had been borrowing for a buy to let mortgage, the first charge loan could have been up to 75% loan to value.
This does not mean any money changed hands. A “charge” on a property is where the lender takes a legal stake in a property. If you do not keep up repayments – in a worst-case scenario – they could settle your debt through the proceeds of the sale of your residential property.
For this reason you need to have a robust plan in place to keep up with your mortgage payments, because in this scenario both the property the clients were buying and their home were at risk of repossession if they could not keep up with the monthly mortgage payments.
Another option could have been to raise the deposit by remortgaging their home, but amongst other factors to consider, a residential mortgage is based on your personal income, where a commercial or buy to let mortgage is based on the income the property will generate. This can be favourable in terms of the loan amount you can achieve.
The clients were very pleased to have secured a 100% borrowing on their commercial mortgage.
Be aware it did require a premium product to achieve this outcome, but, if you are in a similar situation, call us today on the Freephone number above for expert help from our broker team.
The solution
Property value: £175,000
Loan amount: £175,000
Loan to value: 70% LTV secured against the commercial premises, 30% LTV secured against their residential premises.
Rate: 9.99%
Term: 25 years
Payment basis: Capital repayment
Monthly mortgage payment: £1,662
Lender arrangement fee: 2.5% of loan
Do you need help securing 100% commercial mortgage borrowing?
If you are a landlord or property investor and you need help getting a 100% commercial mortgage or 100% buy to let mortgage borrowing:
- For fastest service, call on our Freephone number to get straight through to an advisor, or;
- Live chat with a mortgage advisor
- Request a call-back online
