Mortgages on Bed & Breakfasts

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Mortgages on Bed & BreakfastsWe recently received an enquiry from a potential customer looking to get a Mortgage on a Bed & Breakfast (B&B). Our initial thoughts were that this would need to be a commercial Mortgage and we would need to refer them on to another company.

A commercial mortgage is required for any property which is traded as a commercial concern. However, there are some narrow parameters in which a residential mortgage, on bed and breakfast for example, is possible.

We made a couple of calls and discussed the possibility that a “normal” residential Mortgage could be obtained on a B&B property with our clients as there are some important things to consider.

How do I get a Mortgage for a Bed & Breakfast?

With the lenders we managed to find, there was certain criteria that needed to be met.

For example, there could be no more than 2 rooms which would be let out to paying guests – this was the bit that meant our clients needed to go down the commercial route as there were more than 2 rooms being let out in the property they wanted to purchase.

However, for small micro B&B’s this narrow parameter may not be that much of an issue.

In addition to that, the applicants would also need to live in the property and meet the normal credit and affordability rules.

Looking at the market further it becomes clear that the mortgage lenders may offer some small dispensation from venturing down the commercial mortgage route. However, the amount of area for the commercial part of the property versus that being used as residential is key and most lenders stipulate 40% or less should be for the commercial venture to consider a residential mortgage.

You might be wondering why this would cause any issues and what the impact is?

The problem arises when a residential mortgage is arranged incorrectly for a B&B, as the interest rates are usually better than those of a commercial one – so it’s viewed as cheating the lenders.

If the lender isn’t fully informed and aside from the legal aspect, the consequences, as you may expect, could be very severe as the lender could call in the mortgage, citing breach of covenant.

In 7-8 years since becoming a Mortgage Broker, this was the first time I had ever had this kind of enquiry. It was nice to get something completely different to anything else we had come across before. Although we could not place it, we gave it everything and the customer had their answer within 24 hours from us and incurred no costs.

But like any other enquiry, please get in touch.  We are happy to take a look into it even if our initial thoughts are that we can not do it. Sometimes we learn something new ourselves and if we can not help, you will not incur any costs from us, what have you got to lose?