What type of mortgage do I need to buy a pub?

If you have dreams of pulling pints, calling last orders and emptying the drip trays after a busy Friday night, then you may be in the market for a commercial mortgage.

However, everybody's needs are different and there are lots of different routes to pub ownership, so, before you start ordering kegs and scouting bar staff, read our short guide to really get the measure of the journey you’re about to embark on. 

What are the pros and cons of buying a pub?

Pros:

• The markup for alcohol is high so the opportunity to make profit can be good, depending on where you source your products and the prices you set. 

• Owning a pub is a great way to meet people and become a valued member of your community

• You’re your own boss and can live and work on your terms

• Owning a pub also gives you opportunity to hire out your venue for additional revenue for parties, weddings and other events

Cons:

• The cost of opening a new pub can be high given that there are licensing fees and of course the need to possibly refurbish and decorate.

• If you want to show live sports, you’ll need to pay for a license and depending on the package you opt for, you could be facing costs of up to £1,800 per month. Some landlords work around this by charging customers for a ticket on match days and providing a couple of drinks in return.

• There may also be various unforeseen expenses caused by tipsy customers. Repairs may be frequent and the upkeep of a pub can be a lot of work. 

• Owning a pub can mean long shift and late nights but on the plus side, if you also live in the pub, you won’t have far to go before you reach your bed.

• Bank holidays and weekends are likely going to be your busiest days for trade, so unless you have some trustworthy staff to cover for you, you’ll have to say goodbye to those long lie ins and slow sundays.

• Britain loves a good pub, so naturally, you’ll have some stiff competition from other locals and restaurants too, depending on whether or not you’re planning on serving food.

Do breweries still offer brewery loans?

It used to be the case that breweries would offer low interest loans to landlords, which often had repayment terms of 10 - 15 years. These are less common in 2020 though in some cases, this could be an option. 

A downside of these types of agreements is that in exchange for the loan, landlords can be tied into contracts for their beer (and often wine, spirits and other drinks) direct from the brewer, at full price. 

Getting a mortgage for a pub can provide landlords with more freedom and choice and depending on where they can source their alcohol, mixers and snacks from, a cheaper running cost.

What is a commercial pub mortgage?

Commercial mortgages are often taken out by business owners looking to purchase a property, whether that be for a quirky bar, a cocktail joint or a good old fashioned local. 

When lenders provide commercial mortgages for pubs, they’ll offer the mortgage under set terms which you as the borrower will need to agree to and prove that you can meet.

Lenders will be particularly concerned with your affordability because essentially, that’s how they’ll know whether or not you can repay the loan.

Therefore, you’ll need to persuade them that your pub or bar will be profitable which is why lenders will ask to see:

• Your business plan with detailed accounts of how you’ll spend the loan

• Your USP - what is it about your pub that will be different?

• Your experience as a landlord

• Your recent and past bank statements

• Annual turnover

• Revenue forecasts

• Your credit profile (business and personal).

How much could I borrow to open a pub in the UK?

Lending criteria in 2020 has become more stringent in light of a predicted recession but that doesn’t necessarily mean that you won’t be able to get funding. With the help of a mortgage broker who knows the commercial mortgage market, you may be able to find a lender to provide 70 to 75% of the purchase price.

That would mean that you need a 25% deposit, though a larger deposit can result in lower interest rates. As an example, a commercial property worth £200,000 under the above terms would require a £50,000 deposit.

That being said, every lender really is different and while one may be happy to loan with a LTV of 75% another may have criteria that restricts its lending to 65%.

How long does a commercial pub mortgage span?

A commercial mortgage can be flexible, ranging between 3 to 25 years. Of course, every application will be assessed individually, so just because one landlord has gained approval for a shorter term loan, it doesn’t necessarily mean that your circumstances will allow for that with the same lender.

There are an abundance of commercial lenders across the UK, each with varying criteria that can affect how much you pay overall for your loan. Speaking to a commercial mortgage advisor ahead of applying for a set term, can help you understand how much your pub mortgage could cost you with different lenders and could just save you some money.

Can I get a bridging loan to buy a pub?

Another option for financing the purchase of a pub could be a bridging loan, though keep in mind that these can come with higher interest rates and significantly smaller repayment terms. 

This type of short-term lending is considered riskier than traditional lending but if your circumstances so speak to one of our advisors via our online chat and they can suggest the most viable option for you based on your circumstances.

Can I get a mortgage for a pub with bad credit?

Having a ‘bad credit’ can affect your ability to obtain a commercial mortgage for a bar because lenders will deem you as a riskier borrower who may be more likely to default on their repayments.

That being said, because lender’s each have their own criteria that they use to determine what they accept as ‘bad credit’, you may be eligible depending on the date and severity of the debt. 

Some lenders can be more open to lending to borrowers with credit issues, whereas others may reject the application or stipulate that a larger deposit is required to offset the risk and encourage buyers to own higher stakes of equity. 

Should I buy a pub in 2020?

There are lots of considerations to think about when weighing up the pros and cons of applying for a pub mortgage and rightly so! It’s a big financial decision and one that shouldn’t be taken without proper advice and guidance, which is where we come in.

At the Mortgage Hut, we have a dedicated team who work hard to source the best deals but more importantly, they take the time to listen to what it is you need from a mortgage and only ever recommend products that are financially viable for you.