A new B&B is up for sale, and it's piqued your interest. But your first thought might be ‘how would I even fund this purchase?’
Well, thankfully there are options open to you!
In this blog, we’re going to show you how you can get a mortgage to buy a B&B, so you can start your next business venture.
Can you get a mortgage for a bed and breakfast?
It is possible to get a mortgage to buy a bed and breakfast. However, criteria can vary between different lenders, and your eligibility can depend on several factors. These include:
Credit history – If you have a rocky credit background it could be more challenging to get accepted. That said, many providers will still lend to you in this situation, but you may be charged higher interest rates to balance the risk.
Income – The amount of income you make can also influence your application. Lenders may want to see that you have a stable financial position outside of the business, to know that you will have some capital to get started with.
Industry experience – Whilst it’s not always a requirement, some lenders may want to see that you have experience in the industry. Being in the B&B business is not always easy, so lenders may need some reassurances that you have a plan and know what you are doing.
Size of your deposit – The size of your deposit can have a great impact on your applications success. Since it can be a tricky business venture, lenders may need you to put down a larger deposit than other types of property transactions. Trying to get accepted with no deposit or a very low one could therefore be a challenge.
What type of mortgage do I need for a bed & breakfast?
The type of mortgage you might need for these properties can vary. Usually, they’re classed as mixed-use properties, which means that it has both residential and commercial elements. In this case, a semi-commercial mortgage would be needed.
However, there are exceptions to this. If a large percentage of the property is used for residential purposes, you may be able to get a residential mortgage. Most lenders would expect at least 40% (or more) of the property to be residential to consider this.
So you can get the funding you need to buy your B&B.
What interest rates might I get?
Interest rates are dependent on the lender you go with and your own personal circumstances.
If you have a more complex situation, such as bad credit or a lower deposit, you may be charged higher rates of interest. Providers will do this because they are taking on a greater risk lending to you.
Speaking with a lender or broker before you apply could help you understand what you might be eligible for.
How much deposit do I need to buy a bed and breakfast?
The amount of deposit you need may vary depending on the lender you go with. Some lenders may be willing to accept smaller deposits compared to others. Therefore, it’s vital you research your options carefully before you apply to find the right provider.
Usually, these types of transactions require a larger deposit than standard mortgages. This is because it is often considered to be a riskier transaction, so more capital is needed upfront.
The amount of income you make may also be a determining factor. For example, if you’re needing to borrow a large amount the lender may need to see that you’re in a stable financial position outside of the business.
Where can I get mortgages for a bed and breakfast business?
Getting a mortgage for a bed and breakfast can be quite simple. All you need to do is speak to a lender, bank or a broker to enquire and they will help you with the rest of the process.
However, commercial and semi-commercial property transactions can sometimes be more complex, so some high street lenders may not be comfortable dealing with these cases.
Despite this, there are many specialist lenders and brokers who can assist in these circumstances. So, if you are looking for these solutions it may be best to get the help of a specialist provider, who will be able to guide you in the right direction.
Summary
To conclude, it is entirely possible to get a mortgage to purchase a B&B. However, the costs, interest rates and eligibility criteria can vary from different providers, so it’s important to carry out some research before applying. Once you’re ready you can speak with a lender, bank or a broker to express your interest and they will handle the rest for you.
Any property used as security, which may include your home, may be repossessed if you do not keep up repayments on your mortgage.
