Using a residential mortgage to raise funds for business purposes can be challenging, particularly when the existing facility is still in place. However, with the right lender, it can provide an effective way for business owners to access additional capital.
After reading about Enness in a weekly financial newspaper, a client approached me looking to release funds against their home for business purposes. The client was self-employed and had run their own business for many years, with the company having recently expanded its operations internationally.
The client wanted to raise capital against their Warwickshire residential property, valued at £950,000, but did not want to disturb the first charge mortgage, which was fixed until 2019. A second charge mortgage structure therefore offered a potential solution.
However, the recent expansion had placed some pressure on the company’s cash flow, making it more difficult to secure the level of funding required through conventional business finance. The underlying business remained established, however, and had already begun to generate positive returns from its international expansion.
OUR SOLUTION
After reviewing the wider circumstances, I presented the case to lenders with a focus on the company’s trading history and the anticipated returns from its expansion. Although recent cash flow was under pressure, the business had already returned to profitability over the preceding three months, while its long-standing trading history provided additional reassurance.
I approached a lender with an appetite for higher loan to value (LTV) lending against residential property for business purposes. Following discussions around the company’s future performance, I negotiated a second charge at 80% LTV, subject to the client providing an accountant’s certificate supporting their projections for the following two years.
The resulting facility was arranged over a 15-year term with no early repayment charges. The lender used a manual underwriting approach, allowing the application to be assessed on its individual circumstances rather than relying solely on standard lending criteria.
This case demonstrates how using property to access business finance can provide an alternative source of capital where conventional borrowing may not be suitable. A lender willing to assess the wider circumstances can be particularly valuable when recent cash flow does not fully reflect the underlying strength or future prospects of an established business.
Disclaimer:
This case study is for illustrative purposes only and does not constitute financial, legal, tax or investment advice. Finance is subject to status, underwriting, affordability, property suitability and lender criteria. Terms, rates, LTVs and availability may vary depending on individual circumstances.
Risk Warning:
Your property may be repossessed if you do not keep up repayments on your mortgage or other borrowing secured against it. Property values can fall as well as rise.
Information contained in our case studies is for market and illustrative purposes only. In some cases, these may be made up of multiple cases and are for illustrative purposes only.
Some case studies are made up of enquiries that have come into the business, not all business completes, and the posting of a case study does not represent a completed piece of business.
Property values can fall as well as rise, and you may not get back the amount originally invested. Property investments can be illiquid and may take time to sell. Where borrowing is used, your property may be repossessed if you do not keep up repayments on a mortgage or other loan secured against it.
