Mortgages for Churches
Trying to get a mortgage for a church? It can be done! Find out who the lenders are, what sort of rates to expect and exactly how to get one in our expert guide.
Are you looking for a mortgage for a church or a charity?
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Author: Pete Mugleston - Mortgage Expert, MD
Updated: March 21, 2022
Church mortgages come under the broad umbrella of commercial mortgages but have unique underwriting and eligibility criteria.
A church operates in a very different way from a traditional profit-making business and, with the right lender, the application process reflects that.
This article explains how church mortgages differ from other forms of commercial lending and how to prepare an application to give your church the best chance of being approved.
Can a church get a mortgage?
Yes, although there are many potential pitfalls that need to be considered even before you start to look at rates, terms and providers.
Churches may want a mortgage for:
- Developing an existing building
- Buying new property for a church
- Building an annexe for church use
Church mortgages are not available from most mainstream providers as the circumstances rarely fit standard lending criteria. But there are specialist lenders who will assess each application on its own merits.
To access these lenders it’s usually best to speak with a broker first who has experience with this type of borrowing.
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Deposit requirements and eligibility
If you are looking at renovating or extending a church, the first thing to do is check whether there are any covenants or restrictions in place.
These could affect planning permission so you will need to seek legal advice to determine whether they can be removed and how much it will cost.
For a new church or existing building that requires significant renovation, it’s worth noting that, unlike residential properties, a newly built church is usually worth less than the cost of construction.
Providers will assess the loan against the retail value of the completed building and you will need to factor this into your budget for the project.
Deposits
The deposit required will depend largely on the lenders’ perception of risk associated with the project. Most providers who will consider lending to churches will want a deposit of around 25% – 35%.
This figure could go up or down depending on the overall strength of the application.
Your deposit can come from a variety of sources including:
- Cash in hand
- Grants
- Loans from members of your church community
- Loans from your denomination
- Gifts
It is worth exploring these avenues before applying to ensure you have the maximum deposit possible.
For money that is gifted, many lenders will require written proof that it does not need to be repaid.
Note: There is a difference between ‘loans’ and ‘gifts’ from members of your community. Loans will need to be repaid and some lenders will not approve a loan if money is being borrowed to pay for the deposit.
Eligibility criteria
Whilst some specialist providers are more lenient than high street lenders and will take into consideration the benefit to the community, as responsible lenders, they must also satisfy themselves that the church will be able to keep up with the repayments.
They will typically want to see:
- A business plan: This should explain the purpose of the mortgage and how it will benefit the church and the community. It will also need to include details of how the new or developed building will help generate sufficient revenue to service the loan.
- Record of trustees: A board of trustees that demonstrates longevity and experience in running a church is more likely to inspire confidence in lenders than one made up of newcomers.
- Property valuation: Part of each lender’s risk assessment will involve comparing the size of the loan with the value of the property. In most cases, they will loan a maximum of 65% of the property value. If you need to borrow more than this, you may need to put up other assets as security.
- Suitability: As church buildings are accessible by the public, lenders need to confirm it meets (or will meet) fire safety standards, disability access regulations and other regulatory criteria.
- Usage: You will need to provide evidence that there is sufficient demand in the local community to warrant the purchase or development.
Affordability
Affordability is assessed based largely on the church’s previous 3-5 years of accounts, current financial stability and projections for the coming 3-5 years. Affordability is to some degree negotiable, so you will need to tailor your application to the lenders’ criteria to put yourself in the strongest position. Professional advice is highly recommended for this reason.
Specialist lenders will often take into account income streams not usually considered by mainstream lenders when it comes to financing a mortgage for a church.
These include:
- Grants
- Fundraising
- Charitable giving
The longer these forms of income have been in place and receiving a consistent level of income, the better your application will look.
Credit history
Any previous or existing credit the church has in place will be assessed.
If the church is a charitable trust the trustees will be required to sign the loan agreement and will ultimately be responsible for repaying the loan. Each trustee would, therefore, need to undergo a credit check.
A bad credit record may not rule out the possibility of obtaining a mortgage but will make it more difficult and usually require you to pay a larger deposit, borrow at higher rates or put up additional security against the loan.
For churches operating as a charitable incorporated organisation (CIO), the CIO is the mortgagor so individual credit checks may not be necessary.
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How to get a commercial mortgage for a church
Follow these three simple steps to ensure you present the strongest possible application:
Step 1: Write a business plan
Your business plan should clearly explain the purpose of the mortgage, how the project will benefit the organisation and the community, and how future revenue will make the loan affordable.
Step 2: Speak to a mortgage broker
You’ll need an advisor with a working knowledge and network of associates within the church mortgage lending sector.
Section 10 of the Charity Commission’s guidance on acquiring land (CC33) 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’.
This advice stems from Section 124 of the Charities Act, 2011 that says a charity must obtain an order from the Court or the Charity Commission before agreeing to a mortgage unless trustees have ‘obtained and considered proper advice’.
Due to the complexities involved, the only real way to satisfy these commitments is to speak to someone who understands all of these requirements.
If you get in touch, we can arrange for a broker we work with, who has experience arranging mortgages for churches to contact you directly.
Step 3: Get your paperwork ready
Make sure you have all the documents that lenders might want to see.
The type of information a lender may ask for includes:
- Constitution
- Trust Deed
- Certificate of Incorporation (if necessary)
- Articles of Association
- Home address and date of birth for all trustees and key individuals
- Last 3 years certified accounts and latest (3-6 months) bank statements
- Cashflow forecasts for the next 3-5 years (assuming approval)
- Source of funds for the deposit
- Evidence of any planning permission or regulatory consents
- Valuation report
Which lenders offer these mortgages?
Many providers are reluctant to lend to churches. Mainstream lenders prepared to consider an application will often do so at normal commercial mortgage rates and according to strict lending criteria.
This inevitably leads to rejection on the grounds that the loan is not affordable as churches tend to have complex income streams.
But there are specialist lenders who will listen to individual circumstances, negotiate bespoke rates and offer variable and fixed rates to churches according to the strength of the application.
Typical rates
As applications are assessed on their own merits, there are huge variations on the rates available.
Variable rates are typically offered on a tracker basis at a fixed margin over the Bank of England base rate but with a minimum pay rate.
As an example, you may be offered a mortgage at 3% above the base rate with a minimum pay rate of 5%.
In this case you would pay 5% if the base rate was set at 2% or lower. If the base rate increased to 2.5%, your rate would rise to 5.5%.
Stronger applications may enable more favourable terms while applications that don’t closely match the desired eligibility criteria will often be subject to higher rates.
Understanding of this niche lending sector and the ability to negotiate can go a long way to securing the best possible terms.
How much it will cost
Try our mortgage calculator below to work out how much your church mortgage could cost.
Church Mortgage Calculator
This calculator can tell you how much your church mortgage will cost you each month and overall. Enter the amount you’re borrowing, the term length and interest rate (between 3.5% and 6% is average for this type of finance), and our calculator will do the rest.
Monthly Repayments:
Total amount paid at end of term:
Get started with an expert broker to find out how much they could help you save on your mortgage repayments.
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Get matched with a specialist church mortgage broker
Our broker matching service will put you in touch with a mortgage advisor who specialises in church mortgages.
They will assess your application and identify the right lender to approach. They will then work with you to address any potential barriers to acceptance and make your application as secure as possible.
Your broker’s knowledge, experience and working relationships with providers will give them a vital edge in negotiating any issues on your behalf and securing you the best deal.
Call today on 0808 189 0463 or enquire online to arrange a no-obligation chat.
Get Started with a Broker
Maximise your chance of approval with specialist advice from an expert in Church Mortgages.
FAQs
Church mortgages are a form of commercial finance but if you are looking to convert a church into a residential property you can get a church conversion mortgage.
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Pete Mugleston
Mortgage Expert, MD
About the author
Pete, an expert in all things mortgages, cut his teeth right in the middle of the credit crunch. With plenty of people needing help and few mortgage providers lending, Pete found great success in going the extra mile to find mortgages for people whom many others considered lost causes. The experience he gained, coupled with his love of helping people reach their goals, led him to establish Online Mortgage Advisor, with one clear vision – to help as many customers as possible get the right advice, regardless of need or background.
Pete’s presence in the industry as the ‘go-to’ for specialist finance continues to grow, and he is regularly cited in and writes for both local and national press, as well as trade publications, with a regular column in Mortgage Introducer and being the exclusive mortgage expert for LOVEMoney. Pete also writes for OMA of course!