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Can I get a mortgage for a B&B?
Have you ever wanted to open a Bed and Breakfast (B&B) business? There are many people out there who would be interested, but they may not know where to start. Well luckily for them, our experts have helped numerous others like yourself find the perfect method of financing your B&B dreams through specialised lenders that work within this niche market.
Complete our simple online form to get started, or carry on reading to learn more!
Who is eligible for a B&B mortgage?
For a B&B mortgage, lenders will be interested in your experience in the hospitality industry; the more experience you have, the more likely they are to offer you a great deal on your mortgage.
Having the essential licenses to operate a B&B is a must, and they might also be concerned with the experience of your day-to-day management team. Even if you have limited experience, don't worry; as long as you have a solid business plan, there are lenders who will consider your proposal.
A few tips to get started:
- Make sure you define any renovation or improvement projects.
- Explain how you will achieve projected occupancy rates.
- Incorporate contingency planning into your proposal.
What types of mortgages are there for a B&B?
A commercial mortgage is typically the most suitable type of finance for anyone looking to buy a property wholly for their business.
For B&B's, it may be less obvious whether to use a commercial or residential mortgage as you are more likely to be living at the property too. In this situation, the apportionment between business and residential use will decide whether a commercial or residential mortgage is most appropriate.
- If more than 40% of the property is residential, then you can use a residential mortgage.
- If you use more than 60% of the property for business purposes, you'll need a commercial mortgage.
Mistakes can be costly
You must pick the right type of mortgage as getting it wrong can prove to be an expensive mistake.
Residential mortgage rates are more favourable than commercial mortgage rates, meaning borrowers are naturally more keen to get a residential mortgage. If you use more than 60% of the property for business purposes under a residential mortgage, the lender may claim that you have broken this restrictive covenant and the worse case is that they could recall in the mortgage in full. Not only would this prove very costly, but it would also make it more difficult to secure another mortgage in future.
How much deposit will I need for a B&B mortgage?
In general, commercial mortgages require a higher deposit to mitigate the increased risk of business lending.
You can expect to contribute in the region of 40% deposit for your B&B mortgage; however, this will vary depending on the situation, and some lenders may stretch to a 25% deposit given the right circumstances.
How much trading history will I need?
The majority of lenders will need to see a stable track record of trading before considering borrowing requirements. This typically involves a minimum of two years accounts; however, some lenders who will accept fewer than two years.
If this is your first time buying a B&B property, you will need to provide a robust business plan to show how you will make the investment profitable.
Are there other finance options for a B&B?
Taking out a mortgage is just one of the options for financing a B&B. Other options you may consider:
Business Loan
For low-level borrowing (<25k) you may consider an unsecured business loan, which can be arranged quickly and without security.
Bridging Loan
If speed takes priority, bridging loans provide rapid access to finance and are designed for short term lending. You will need a clear exit strategy for when the loan expires, whether this is a mortgage or sale of the business.
Development Finance
If you have big plans for your B&B, development finance could be a viable option. Designed to be released in phases to coincide with renovation milestones, you only pay interest on the funds received to date with development finance.
Equity Release
People with a property portfolio may choose to release equity on an existing business, or residential property to fund a new B&B. This would allow you to fund the deposit needed for a commercial mortgage if required.
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Can I get a mortgage for a B&B with bad credit?
It is undeniably more challenging to get the best deal on a new mortgage with a bad credit history, but not impossible. Not all bad credit is viewed equally, and the lender will be concerned with the age and severity of the credit.
There are a few things you can do to improve your chances:
- Access your credit record with the major agencies - understand if there are any differences
- Apply to amend any inaccuracies
- Make sure you are registered on the electoral roll
- Use credit sensibly and make repayments on time.
This will help to demonstrate to lenders that you are a responsible borrower.
Our advisors have helped many people with bad credit to get a mortgage that is right for them, complete our easy online form today to get started.
How can I learn more?
At Teito, we are a whole-of-market mortgage advisor, which means we have access to specialist lenders who are willing to accept B&B mortgage applications. We would recommend using an experienced broker to get the perfect mortgage for you, complete our online form now to get started.
Choosing an Adviser
Selecting a qualified and experienced mortgage adviser is of great importance. To choose a suitable adviser, evaluate their qualifications, experience, and reputation, and ensure they are regulated by the Financial Conduct Authority (FCA).
Read reviews from previous clients and make sure they provide a clear explanation of the products and services they offer, as well as the fees and charges associated with them.
Last updated 28 February 2024