Overview

Unlike Commercial Investment, this is where the property owner and the trading business that operates out of the property are linked.  This might be in the form of similar/identical ownership, shareholding and directorships.

Finance for this type of scenario is typically a little cheaper than in a Commercial Investment scenario.  The simple reason for this is driven around the information that the lender is able to obtain and assess, as well as the motivations of both parties being aligned.  If you think about a Commercial Investment scenario, the tenants are separate and therefore a lender can only assess their financial strength to afford the rental payments from publicly available information (usually limited when it comes to financial accounts).  However in an Owner Occupier scenario we should be able to provide full detailed accounts to the lender, which can give them comfort around the trading business and its ability to pay rent.

The assessment of the affordability in the Owner Occupier scenario is focused very much on the financial performance of the trading business.  Even if the property is held in a separate legal entity and rented to it.  This performance is typically assessed using the EBITDA calculation (discussed separately), and compared against the mortgage payments at a ratio (usually a minimum of 125%).  So for example, for every £100 of mortgage payment we would need to see the adjusted EBITDA in excess of £125.

Trip Up's

Whilst Owner Occupiers are considered differently from Commercial Investment, the subject of a commercial lease is usually required by lenders.  As both sides of the lease are the same/similar this is usually not a problem.  However what the lender will likely expect would be a lease that covers their committed term (typically 5 years), with no break clauses, and at a rental level inline with the market from the valuation.  Be mindful however, that some leases can also become liable for stamp duty, therefore it is important to check with your solicitor to ensure you are not tripped up.

Another area that can catch people out on commercial property purchases, is the subject of VAT.  Whilst a small proportion of properties are impacted by this, however we have seen businesses being caught out by finding this out late in the process after various costs have already been incurred.  It is a good question to ask agents at the very outset.  Whilst VAT is of course refunded, there is still the need to be able to fund this in the interim period, and on a £500k property for example, this would be a cost of £100k that may not have been budgeted.  It is possible to get finance for this additional cost (usually at almost 100%) however this does come at a cost, and in some examples this could still be quite a bitter pill to swallow.