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Mortgage Advisor & Director
Can I get a mortgage to buy a guest house?
Yes! We get many enquiries from people who are looking to open their own guest house, and there is no reason why you can't get a mortgage to turn your dream into a reality. Our team of experienced advisors have helped many people like you to open their own guest house, and although it is a relatively niche requirement, there are specialist lenders in the market.
Complete our simple online form to get started, or carry on reading to learn more.
Will I need a commercial or residential mortgage for a guest house?
A commercial mortgage is probably the most suitable type of finance for anyone looking to buy a property solely for their business. For guest houses and B&B's, it might be less clear whether to use a commercial or residential mortgage as you are more almost certainly living in the property too. The way that this is decided is the apportionment of the property for business and residential use. 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 select 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 keener 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 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.
Am I eligible for a guest house mortgage?
Lenders will be concerned with your experience in the hospitality industry, the more experience you have, the more likely they are to offer you a mortgage. Having the necessary licenses to operate a guest house is a must, and they might be concerned with the experience of your day-to-day management team. Even if you have limited experience, fear not, as long as you have a solid business plan, some lenders will consider your proposal.
A few tips to get started:
- Make sure you detail any renovation or improvement works.
- Discuss how you will achieve planned occupancy rates
- Include contingency planning
How much deposit will I need for a guest house mortgage?
Commercial mortgages, in general, 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 guest house mortgage; however, this will vary depending on the situation, and some lenders may stretch to a 25% deposit only under 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 guest house, you will need to provide a robust business plan to show how you will make the venture profitable.
Are there other finance options for a guest house?
Taking out a mortgage is just one of the options for financing a guest house. 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 guest house, 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 guest house, business, or residential property to fund a guest house. This would allow you to fund the deposit needed for a commercial mortgage if needed.
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Can I get a mortgage for a guest house with bad credit?
It is undeniably more difficult to get the best deal on a new mortgage with a bad credit history, but not impossible. Not all bad credit is created 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 guest house mortgage applications. We would recommend using an experienced broker to get the perfect mortgage for you, complete our online form now to get started and one of our advisors will be in touch.
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 29 February 2024