Charity Mortgages

With cash flow tight and grant funding in decline, many charities are looking to other sources of finance for purchasing premises, including borrowing through charity mortgages.

In this guide, we’ll explain how to get a mortgage as a charity, the eligibility and deposit requirements, and the regulations you’ll need to comply with.

Can a charity get a mortgage?

Yes. Lenders view charities as businesses and, therefore, they would be eligible for a commercial mortgage rather than a residential mortgage. Charity mortgages can be used to purchase specialist premises, offices, community spaces, or even to build something from scratch.

Commercial mortgages for charities are considered high risk, so rates will be less competitive and lenders will require higher deposits than for residential mortgages.

The Charities Act also sets out some specific regulations for charity lending, including a requirement to take written advice from an expert.

Because charity income is less predictable than that of a typical business and may rely on charitable giving rather than sales, it can be harder to secure a mortgage from a high-street lender.

There are specialist mortgage providers, though, who understand the complexities of borrowing as a charity and will consider applications on a case-by-case basis.

The best way to access these lenders is through a broker with experience in this type of borrowing.

Will my charity qualify for one?

You’ll need to check your governing documents carefully before you agree to any borrowing. Sometimes, it’s explicitly stated, and other times, it may be implied.

If it’s not clear, you may need an order from the Charity Commission that allows you to take out a mortgage. If you’re not sure, best to get in touch with them for guidance.

The Charities Act lays out strict rules around charity borrowing that can invalidate a mortgage if not followed correctly. Chiefly, a charity must get written advice from an expert who doesn’t personally benefit from the loan before it approves and signs any documentation.

This should go into detail about whether the loan is appropriate, if the terms are reasonable and whether the charity can afford it. The mortgage documents themselves should also clearly state that the land belongs to a charity and that the trustees have taken the required advice.

Your charity will also need to meet the general eligibility requirements for this type of commercial mortgage, which are outlined in the next section.

Eligibility criteria

In addition to the standard mortgage eligibility criteria, such as credit history, property value, and deposit amount, a lender will consider several specifics when assessing a mortgage for a charity.

Deposit requirements and other terms

The deposit requirements for a commercial charity mortgage typically range from 20% at a minimum up to 50%, with 25% to 30% being the average.

If you can take a lower loan-to-value ratio, you may be able to negotiate a better interest rate, which will be valuable as interest rates on these mortgages tend to be higher. You may also find higher arrangement fees, sometimes as high as 2%.

Lenders normally prefer to offer charity repayment mortgages, although interest-only charity mortgages are available from some lenders. Others may be prepared to offer a short interest-only period at the start of the mortgage. Typical terms are 10-15 years, but they could be anything from 5-25 years.

Calculate your mortgage payments

You can use our mortgage calculator below to estimate your repayments on a charity mortgage.

How a broker can help

Section 10 of the Charity Commission’s guidance document ‘CC33 Acquiring Land’ states, ‘ If trustees are buying land with the aid of a loan, it is their duty to secure the best borrowing terms reasonably obtainable by comparing interest rates and other terms between various lenders.’

The commercial mortgage market for charities is complex, and trustees are unlikely to have the time, knowledge, or experience to meet this requirement without expert help. A broker who specialises in charity mortgages will be invaluable here.

The brokers we work with not only have experience of the market as a whole, but they’ll also have existing relationships with individual lenders and be able to act as negotiators for the charity, helping secure the best possible rates and terms.

If you get in touch, we will arrange for an expert with experience in accessing mortgages for charities to contact you straight away.

Which lenders offer commercial mortgages to charities?

Your broker will explore both mainstream and niche lenders specialising in mortgages for charities.

It’s difficult to predict the exact terms you’re likely to be offered, as charity mortgages are looked at on a bespoke basis, but here are a couple of examples of specialist charitable lenders:

• Ecology Building Society offers mortgages to charities supporting the environment or local communities. They can loan up to 80% of the total value, and rates at the time of writing are 4.15% – 6.15%. They have a 0.5% non-refundable fee on application and another 0.5% on accepting a formal offer.
• Kingdom Bank specialises in lending to Christian organisations. It can offer four types of charity mortgages for staff housing, social housing, premises, or property to be developed for a social enterprise.

Rates and terms will vary depending on your circumstances and eligibility. Still, your broker will help you thoroughly explore all your options to ensure you get the best deal for your charity.

Get matched with a specialist charity mortgage broker

We work with mortgage brokers who have experience in securing commercial mortgages for charities. We will be able to get you the best deal and ensure you comply with charity regulation requirements at every stage of the mortgage application process.

When you get in touch, we’ll quickly assess your circumstances and match you with a broker with the expertise and contacts that you need as a charity. They’ll have access to the whole charity mortgage market and can provide you with the assistance you need and ensure you find the very best lender for your project.

Give us a call on 0330 822 0505 or make an enquiry, and we’ll arrange a free, no-obligation chat with a mortgage specialist in these mortgages.