Pub mortgages explained
What is a pub mortgage?
Pub mortgages are a type of commercial mortgage which are specifically designed for pubs, bars and nightclubs. These loans work in the same way as standard commercial mortgage products, but most lenders have specific criteria for these businesses due to their specialist nature.
How do pub mortgages work?
These loans can be offered on an interest only or capital repayment basis and are secured against the property, or even multiple properties, where appropriate. They are usually repaid through monthly payments, as with standard residential mortgages, although weekly or quarterly payments may be possible for some applications.
As pubs are specialist businesses, pub mortgages are individually assessed, as is the case with other industries, such as hotel mortgages and others in the hospitality industry.
How long does an application take?
Subject to any delays in becoming personally licensed for the sale of alcohol, we are usually able to complete commercial mortgages for pubs in 6 – 12 weeks.
The speed of completion will depend on the complexity of the application and the availability of the information needed to assess the application fully.
Key product features
|Max LTV||Up to 75%|
|Interest rate||From 2.25%|
|Repayment type||Capital repayment, interest only or part and part|
|Interest type||Fixed or variable available|
|Acceptable security||Any commercial or semi-commercial property considered. Land accepted on a case by case basis|
- Loans from £25,000 with no maximum loan size
- Available to individuals, partnerships, LLPs, Ltd companies, offshore companies, foreign nationals and pension funds
- Minimum applicant age 18 years – no maximum age
- Available in England, Scotland, Wales and Northern Ireland
- Adverse credit accepted (on a case by case basis)
- Products with no early repayment charges available
Costs of a pub mortgage
Although rates vary from application to application, interest tends to fall between 3 – 7% per annum. The size of the loan, your credit history, the Loan to Value (LTV) requested and the strength and trading history of the business will be key factors in deciding the rate charged.
Set up costs
The largest set up cost is usually the lenders arrangement fee. On top of the interest rate charged, the lender will usually charge an arrangement fee of between 1.5-2% of the loan amount. Although this fee could be considered a large expense, it can usually be added to the loan.
Valuation fees are also charged and must be paid early in the application process, these fees vary depending on the location, type and value of the property.
Legal fees are usually paid at the end of the process, other than a part payment, which is usually requested before the solicitor begins their work.
Stamp duty and VAT
Stamp duty will be due on purchases (unless they are below the minimum property value), and are paid on completion of the purchase. The funds to pay can not usually be borrowed from your lender.
On some purchases, VAT will be due on the purchase price and can often be reclaimed post completion. Where a pub purchase is VAT applicable, we are usually able to provide a VAT loan for up to 100% of the VAT amount, while it is reclaimed.
How much can you borrow when taking a mortgage for a pub
Loan to value
The maximum LTV offered is usually up to 70% (meaning a 30% deposit) of the going concern value (the value of the building and business value combined). It’s worth noting that this is the maximum figure and will apply only to strong applications, weaker applications will be restricted to 55 – 65% of the going concern value.
Lenders will want to ensure that your new mortgage is affordable, even if your loan to value is low. To check this, they will look at your trading history. The accounts should clearly demonstrate that the proposed mortgage is affordable. Where there are other expenses which can be shown to be non-recurring, these should be pointed out clearly.
Where to get a pub mortgage
Which lenders offer pub mortgages?
Funding for pubs is harder to come by than a lot of other sectors. However, there are still a number of lenders happy to consider applications. They can largely be grouped as follows:
- High street banks – These will generally offer the lowest rates and are the best-known lenders. Lending through high street banks is usually handled by specialists within the commercial lending team who are familiar with the inner workings of the pub trade.
- Challenger banks – Although many challenger banks shy away from the leisure sector, some challenger banks will still lend. These lenders will often have more flexible criteria and more lenient affordability rules. The price that is paid for this flexibility is a slighter higher interest rate to reflect the slightly higher risk taken.
- Specialist commercial lenders – Some specialist commercial lenders will lend against pubs. These lenders tend to take on higher risk applications, such as those with poor accounts or adverse credit history. These lenders will usually offer a lower loan to value and will charge higher interest rates.
Using a broker vs approaching a lender directly
Due to the specialist nature of these mortgages, there are advantages and disadvantages to each route. A good broker will be able to manage the process and present the application in the best light to the lender. This can have a significant impact on the success of an application.
That said, some brokers charge high fees (we don’t charge broker fees for loans over £100,000) and this can significantly add to your costs. In addition, a broker who lacks experience in raising finance for the hospitality sector is likely to struggle, and may actually make the process more difficult.
Who can apply for a pub mortgage?
These mortgages are available to both those looking to purchase a pub and those who already own them, and are looking to refinance. Lending can be offered in individual names, through partnerships, LLPs, Ltd companies and in some cases, to more complex ownership structures.
Applicants with bad credit
We can still potentially lend if you’ve got adverse credit such as missed payments, defaults or CCJs. Some lenders may be unwilling to help. However, our advisors will be able to clearly break down the bad credit commercial mortgage options available to you given your circumstances.
Types of product available
Mortgages for pubs can be arranged on a fixed or variable rate basis. Fixed rate mortgages are usually only fixed for part of the mortgage term, rather than the whole term – for example a 5 year fixed rate on a 20 year term.
Fixed rates are usually offered for 2-5 years, although longer ones are available in some situations.
Applications to buy a pub are welcomed, and the key issue is understanding the previous trading performance, and your ability to maintain or improve that.
If you already own your pub and are looking to refinance to secure better terms, or to raise additional capital, the lender will assess the application slightly differently. If the pub is owner-occupied, trading performance will be vitally important, and accounts and bank statements will be thoroughly checked.
For pubs which are let, the quality of tenant and length of lease will be key considerations. The application will then be checked against the normal rental coverage calculations for the lender.
Pub portfolio mortgages
If you’re looking to purchase a pub and already own another one, which will continue to trade, the current business may be used to help affordability calculations. Where trade from the current pub is resulting in excess profit, the lender may be more lenient on the affordability assessments for the purchase.
This could allow you to purchase a business that may otherwise be difficult to borrow against.
Pub refurbishment loans
If you’re looking to buy or refinance a pub that will be undergoing a major refurbishment, you may find that commercial mortgage lenders are unwilling to help. Generally speaking, they do not like to lend when major works will be happening to their security.
Where this is the case, a bridging loan may be the best option for you. Once the works are complete, you could then refinance to a commercial mortgage.
Key criteria points
There are numerous factors to consider when looking to purchase a public house. But with our extensive experience of working with lenders and borrowers in this sector, we’ve got you covered. The main factors are the following:
Experience of running a pub is an important factor in the success of an application. This is especially true of applications where trading history is poor, or there are other problems with the pub. Even if you’ve never owned a pub before, experience in the industry is a massive plus for lenders, especially if you have an experienced team around you.
If you’re looking to buy a pub with no experience in the sector, then a strong history of running your own business will be a major positive. If you’ve not been involved in the pub or hospitality industry previously and you have no experience of running a business, the chances of your application being approved are slim.
Trading performance is crucial to the success of the application and will be a deciding factor in which lenders will consider your application. For applications where previous accounts aren’t available, the lender will want to understand what the plan is for the new business and its likely ability to afford the repayments.
Applications for non-trading pubs or pubs without accounts will require a business plan and detailed projections. It’s important that these are available as early as possible in the application to allow the lender to make an informed decision on whether the loan is acceptable.
Where accounts are available, the lender will usually want to see at least two years trading performance through full accounts, not abbreviated.
Where the future prospects of the business are likely to change, projections and a business plan can be used to show the expected future position. If projections are to be used for a trading pub, there will need to be a good reason for the expected change in profitability, such as the cutting of ties with a brewery, or introduction of food.