B&B mortgage (A 3 point guide)

In this brief blog post, we will cover how you can get a mortgage for a bed and breakfast.

What is a B&B mortgage?

A B&B mortgage doesn’t actually exist as a type of mortgage but rather you can use a commercial mortgage for your B&B mortgage. Commercial mortgages are appropriate when you have a business activity taking place in the property.

Using a residential mortgage as your B&B mortgage may be possible but you should first seek permission from your residential mortgage lender if not you could be breaking the terms of your mortgage agreement.

Those looking to buy a Bread and breakfast may wonder if a residential or commercial mortgage may be more suited to them as most bed and breakfast owners will typically reside in the same property they use as a Bread and breakfast.

This really all depends on how much of your property is used for residential purposes and how much of it is used cor commercial purposes.

If you use more than 40% of the house for residential purposes then a residential mortgage may be your ideal option for a B&B mortgage however if you use less than 40% of your home for residential purposes then you may need to get a commercial mortgage.

Getting the right B&B mortgage is very important as the rates offered on this mortgages are usually very different and if a mortgage lender feels that you have intentionally been dishonest in your dealings with them then you may find that they ask you to repay the whole mortgage in full immediately and close your B&B mortgage account.

If you are looking to get a B&B mortgage then speaking to a mortgage broker who is able to analyse all your mortgage options may be your best bet to ensure you get the right type of B&B mortgage for your particular circumstances.

Can you get a B&B mortgage if you have bad credit?

Getting a B&B mortgage with bad credit will be difficult but this will depend on what form of B&B mortgage you are after and what sort of bad credit you have.

If you get a B&B mortgage which is a residential mortgage then you may have more mortgage options with a bad credit.

If your B&B mortgage option is commercial mortgage then you may find it incredibly hard to find a B&B mortgage lender willing to lend to you.

In short, the chances of you getting a B&B mortgage will depend on what type of mortgage you get but it will also depend on your own personal circumstances.

You may want to use a bad credit mortgage broker to assist you in analysing your mortgage options.

Can you get a B&B mortgage if you are self-employed?

You may be able to get a B&B mortgage if you are self-employed but you may want to seek the advice of a self-employed mortgage broker.

As a self-employed borrower, you will have to prove that your income is reliable so you can get a B&B mortgage.

You will usually have to produce the below documents

Your CV

Your P60 tax return

Your SA302 Tax calculation form

An accountants certificate for a mortgage

3 months worth of bank statements

How much mortgage deposit do you need for a B&B mortgage?

Most commercial mortgages will request a mortgage deposit of between 20 and 40% but B&B mortgages will usually see larger mortgage deposit requirements of around 40%.

You may be able to ut down a mortgage deposit of between 25 and 35% based on the strength of the Bread and breakfasts financial accounts and your experience with the industry.

If you are a first-time bread and breakfast buyer then you will likely have to put down a mortgage deposit of 40%.

How much can you borrow for a B&B mortgage?

Different mortgage lenders will use different mortgage multiples when trying to work out how much you may be able to borrow from them. B&B mortgages are slightly different depending on if you are getting a residential mortgage or a commercial mortgage.

In either case, one of the key components on how much you may be able to borrow on a B&b mortgage will be your monthly disposable income.

B&B mortgage lenders will like to see that you have enough monthly disposable income to cover the monthly mortgage repayments on your B&b mortgage.

The strength of the Bread and breakfast’s financial accounts will also play a key role in how much mortgage you may be able to borrow.

Can you remortgage a B&B mortgage?

Yes, you may be able to remortgage a B&B mortgage but you may still need to meet the mortgage lenders mortgage affordability requirements in regards to having some experience as a B&B proprietor, having accounts which are profitable and suitable equity in the B&B property.

How do lenders assess your eligibility for a B&B mortgage?

When deciding on if to give you a B&B mortgage or not, a mortgage lender will look to see if you have suitable experience in the bed and breakfast sector before they give you a B&B mortgage.

If you have significant experience in the bed and breakfast industry then you may find getting a B&b mortgage much easier than someone who doesn’t.

If you don’t have suitable experience then you may still be able to get a B&b mortgage but you may be limited to a few mortgage lenders.

B&B mortgage lenders will also want to know if you carry all the licenses required to run a bed and breakfast mortgage.

The B&B mortgage lender will want to see your business plan and financial projections for the next few years. If you have already been running a bed and breakfast then the mortgage lender will want to see your recent account to see if you are running a profitable Bed and breakfast.

The B&B mortgage lender will also want to see an itemized list of any future costs you expect to incur on renovations, your marketing plan, your SWOT analysis and any statistics which you have used to make assumptions.

If you are looking to remortgage your current B&b mortgage then you may also be able to do this considering the points mentioned above.

The bread and breakfast past accounts

B&B mortgage lenders will also look at your trading history to see how experienced you are with the bed and breakfast business. They will look at your past accounts to see how profitable they have been and if they haven’t been profitable then this may limit the amount of B&B mortgage lenders available to you.

If you are just buying a B&B for the first time then the mortgage lender will look at the trading accounts from the previous owners to see how profitable the B&B was.

If the B&B wasn’t profitable, don’t be too worried as there are B&B mortgage lenders out there that may consider your B&B mortgage application.

Alternatives to a B&B mortgage

There may be several alternatives to a B&B mortgage you may want to consider as B&b mortgages require such a large mortgage deposit which you may not have access to at the moment or maybe you just want a less costly way to acquire a B&B property.

Releasing equity

You could release equity from other properties which you own by remortgaging them. You could then use this equity to finance your B&b mortgage deposit or the complete purchase of your bed and breakfast property with cash.

Bridging loan or mortgage

If you need to buy your bed and breakfast property quickly then you may be able to use a bridging loan to accomplish this.

A bridging loan or mortgage will allow you to purchase the bed and breakfast property quickly but may be more costly in comparison to a B&b mortgage.

Bridging loans are usually used for 12 months but you may be able to use them for up to 36 months under the right circumstances. Your repayment plan for your bridging loan could simply be the sale of the bed and breakfast or your remortgage to a B&B mortgage.

Unsecured business loans

If the funds you need for your B&B mortgage are less than £25k then a short term unsecured business loan may be one of your options and worth considering.

Development finance

Development finance is similar to a self-build mortgage and is essentially useful if you want to renovate the bed and breakfast property. The lender will give you a mortgage based on the post-renovation value you have estimated with the help of a surveyor and property valuation. The funds will be released to you as you reach your development milestone and this means you will only pay interest on funds that are being utilized.

How to get a B&B mortgage?

If you want to get a B&b mortgage then you should speak to a commercial mortgage broker who may be able to advise you on your B&B mortgage options.

If you need financial advice and you live in the UK then you could contact the Money Advice service over the phone or via chat for impartial advice.

You can also contact the debt charity “Step Change” if you are in debt and need help.