Updated: April 13, 2023
Commercial Mortgages for Pubs
Looking at financing a pub purchase? Pub mortgages are easier to get than you might think! Find out exactly how to get one in our in-depth guide.
Author: Pete Mugleston - Mortgage Expert, MD
Updated: March 24, 2022
To succeed in owning your own pub, there are a whole range of details to take care of. Some you might be an expert in, liking sourcing high-quality drinks. Others might be completely new to you, like finding a great mortgage deal.
Mortgages for pubs are far rarer than for houses. You’ll have a limited choice of lenders, so it’s important to make a strong application that meets their criteria.
This guide explains how to do that and how to overcome any challenges along the way.
The following topics are covered below...
Who can get a pub mortgage?
Pub mortgages are a niche variety of commercial mortgage that are available for individuals or businesses who are looking to buy a pub or who already own one and want to refinance.
The ideal candidate that lenders are looking for has:
- Significant experience in the hospitality industry
- Financial records showing that the pub is commercially viable
- A strong business plan
- A good credit history
- A cash deposit of 40% or more
If you tick all those boxes, you’re well on your way to approval. If you don’t, there’s no need to lose hope just yet.
Every lender has different approval criteria, meaning some will overlook flaws in your application that others won’t. It’s all about finding the right one.
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How to get a pub mortgage
Whether you see yourself as a perfect applicant or not, there are three important steps to take to get your mortgage….
Step one: Prepare your case
Start by reviewing the full accounts of the pub you want a mortgage for. Create your business plan and forecast the pub’s income in future years. Obtain any qualifications and licences that you don’t yet have.
Step two: Find the right lender
Acknowledge any weaknesses in your application, such as an incident in your credit report, a low deposit, or the pub’s history of low earnings. Then, aim to find a lender who will consider your case despite these weaknesses.
This is very difficult to do alone so, at this point, it makes sense to seek expert advice from a broker.
They will tell you which of the available lenders you have the best chance with, and they’ll recommend the best deal for your circumstances. Without consulting a broker, you could end up paying more than you need to or be rejected outright.
Step three: Make your application
Submit your paperwork, along with your accounts, business plan, and proof of deposit. If you’re working with a broker, they will help you to present your case in the best possible light and tailor it to your chosen lender to improve your chances of first-time success.
How much it will cost
You can use our commercial mortgage calculator below to work out what your pub mortgage could cost each month. Typical interest rates for commercial mortgages are usually between 3.5% and 6%, though this is always subject to change.
Pub Mortgage Calculator
This calculator can tell you how much your pub mortgage will cost you each month and overall. Enter the amount you’re borrowing, the term length and interest rate, and our calculator will do the rest.
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.
Which lenders offer these mortgages?
Whilst not all lenders offer pub mortgages, you still have a choice between:
- High street lenders, including Lloyds Bank and Barclays
- Specialist commercial lenders, including Redwood and Allica
High street lenders are widely known and tend to offer lower rates. Their lending criteria can be strict and rigid, but if you’re an ideal candidate that might not be a problem.
Specialist commercial lenders have a better knowledge of the hospitality industry and so can be more flexible if they see the potential in your business. However, the trade-off for that flexibility is usually a higher interest rate.
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Some of the eligibility requirements to buy a pub are set in stone, while others have a little more leeway.
Experience and qualifications
The best evidence of experience is if you currently manage a successful pub, or you have done in the past.
Alternatively, if you studied hospitality or have spent years working in the industry, this can improve your application.
At a minimum, you’ll need an NIIA level 2 Award for Personal Licence Holders from an accredited qualification provider.
This qualification shows that you understand the Licensing Act of 2003 and understand the responsibility to protect children and prevent crime and disorder. You’ll need it to get a personal alcohol licence.
Lenders will expect you to have two licences:
- Personal licence. Your pub must have a designated premises supervisor (DSP) – usually the owner – who holds a personal licence. This costs £37.
- Premises licence. Your pub also needs a premises licence, which allows the venue to sell alcohol. Other activities, such as screening sports, playing music or hosting live music performances, and allowing dancing, also require a licence. This costs between £100 and £1,095 depending on your pub’s valuation.
Most lenders will offer pub mortgages with a maximum loan-to-value of 70% or 75%.
This means that you’ll need a deposit of 25-30% of the property value, at a minimum.
For example, if the property is worth £400,000, you’ll need a deposit of £100,000-120,000.
You’ll have access to better rates if you have a larger deposit.
At the time of writing, the best available rate for a 75% mortgage was 5.15%, while the best available rate for a 60% mortgage was 3.5%.
As with any mortgage, lenders prefer to see a spotless credit history. Beyond that, they view past incidents with varying degrees of leniency.
Here are a few examples:
- Aldermore allows no defaults of county court judgements in the last 36 months
- Shawbrook Bank allows no defaults of county court judgements in the last 24 months
- Cambridge & Counties Bank allows a maximum of one satisfied county court judgement or default within the last 24 months, but none in the last 12 months.
So, if your credit record is any less than perfect, you’ll need to choose your lender carefully to make sure you meet their requirements.
As with any commercial mortgage, your lender will assess affordability and this would usually be based on the business’s earnings before interest, tax, depreciation, and amortisation (EBITDA).
So, they’ll need to see the accounts for the past few years.
If the pub’s current EBITDA will not cover the mortgage repayments, some lenders will decline your application.
Others might allow you to declare other sources of income that you could use to make the repayments. Or they might accept your business plan as evidence that you can increase the pub’s earnings.
If the pub you want to buy isn’t currently trading or if the accounts show that the pub isn’t making enough money, lenders will be particularly keen to see your business plan.
This will show your projected earnings and how you plan to achieve those projections, including your budget for costs, such as marketing.
If you have experience successfully running pubs in the past, a specialist lender might then allow you to borrow more than the outcome of their affordability assessment.
Other financing methods
If you can’t get a mortgage, or you don’t want to, there are several other ways you can finance your pub purchase.
- Releasing equity. If you own other pubs or properties, you can release equity from these assets via a remortgage to raise the capital to buy a new pub.
- Bridging loans. If you need to move quickly to buy a pub and plan to get a mortgage later (or if you have a different exit strategy to pay off the loan), you can apply for bridging finance. This is a type of commercial loan with a shorter term than a mortgage and a less onerous application process.
- Development finance. If you are in a position to build a pub from the ground up, you could apply for development finance to do this. This is a type of funding that is released in several instalments to align with the stages of your project plan.
You may not know where to start comparing these types of financing, which all have different advantages and disadvantages. A lot depends on the specifics of your situation, so you should speak to an expert to help you with your decision.
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Freehold vs leasehold pubs
Another alternative to getting a pub mortgage is to lease a pub. This gives you the right to run the pub as a business without owning the building itself.
Here are some of the key similarities and differences:
|Freehold pub||Leasehold pub|
|Ownership of building||You will own the pub building||You will lease the building from a leaseholder (often a brewery)|
|Responsibility for building||You will be responsible for maintenance of the building||You will be responsible for maintenance of the building|
|Management of business||You will run the pub business||You will run the pub business|
|Duration of tenure||You will own and run the pub indefinitely, until you sell it||You will have a long-term contract to run the pub for 10+ years|
|Sourcing of drinks||You will be free to source your drinks from any brewery or supplier||You will usually be contractually obligated to source your drinks from a particular brewery|
While the choice is yours to make, you’ll ultimately only have full control if you buy a freehold pub with a mortgage, rather than occupying a leasehold pub.
Get matched with a mortgage broker who specialises in pub finance
Since pub mortgages aren’t that common, not all brokers have experience in this area. Having an inexperienced broker can work against you, slowing down a process that should otherwise be quick and easy.
We offer a broker-matching service to connect applicants with an expert who’s dealt with similar cases. It’s free to use and the process starts a no-obligation chat about your circumstances and questions.
To speak to a commercial mortgage expert who specialises in pub finance today, just complete our online form or give us a call on 0808 189 0463.
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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!