Is it worth getting a commercial mortgage at a high Bank of England base rate?
If you’ve been considering buying a quality bed and breakfast or a hotel, believe it or not, now is not the time to flinch at the Bank of England Base Rate (BoE BR) increases, in fact this should be seen as a rare and unique opportunity to purchase your dream lifestyle hospitality business.
5% used to be a normal and competitive interest rate for hospitality
mortgages
Although BoE BRs are at a recent all-time high, they are still relatively low in comparison to the pre-financial crash back in 2008, when the BoE BR was 6%, at the time this rate was the norm and reasonably competitive.
The current prevailing rate of 5% can in this context still be seen as reasonably competitive and importantly this didn’t prohibit people buying businesses back in the day.
Interest rates are more realistic in 2023
It is only since the financial crash of 2008 that we’ve seen BoE BRs plummet to near zero and which in-turn led to an unprecedent rise in business values, because cheap money was readily available, supported by the Bank of England’s policy of quantitative easing and latterly the financial support offered by the UK Government to businesses during and post pandemic.
Despite the ups and downs of Base Rates, Lenders who are considering lending to people requiring commercial mortgages have always factored in potential rises in BoE BRs to ensure that their loan servicing was secure, even if BoE BRs increased to 12% which is a doomsday scenario.
On a positive, the increase in Base Rate to 5% has led to more realistic pricing of hospitality and leisure businesses, as there is a real perception out there that these increases will make borrowing money more expensive, which it indeed will.
Cost of borrowing offset by reduction in market pricing
Conversely, the increased cost of borrowing will be off-set by a reduction in market pricing, especially so in the hospitality and leisure sectors that are prone to discretionary expenditure, so on balance, you’ll not be overly disadvantaged by higher BoE BRs, when buying a hospitality or leisure business.
You might ask why this is the case, the answer is simpler than you might think: vendors generally sell their hospitality and leisure business for a variety of reasons, retirement being the most common, followed by death, divorce and debt.
As a consequence, business owners who want a rapid exit with an expeditious sale are very concerned that the increases in BoE BRs have caused market uncertainty, with commercial mortgage debt being considered as unaffordable by many prospective purchasers, when in fact debt is still comparatively cheap.
Hotel and Bed and Breakfast purchase prices discounted by up to 20%
To counter these concerns, vendors are turning to discounting the guiding price of their businesses for an expeditious sale, sometimes by up to 20% or more, which wouldn’t have even been considered by the vendor or by their sales agent some 18 months ago.
So how can you take advantage of this unique and limited opportunity before the market corrects itself and prices of hospitality and leisure businesses return to pre-BoE BR increase norms.
Specialist commercial mortgage brokers can help
Quite simply, you need to engage with a firm of specialist hospitality and leisure brokers, such as Stewart Hindley, who have the sector expertise and knowledge to provide a funding solution that ticks the lenders’ boxes and one that is affordable at the current BoE BR.
Stewart Hindley can provide funding solutions over longer terms, ensuring that your loan repayment are affordable at the current BoE BR, with options like interest only payments and capital repayment holidays, to off-set the current high cost of borrowing until Base Rates reduce, as well as seasonal payments to improve cash flow and debt servicing.
The future of base rate hikes in 2023
Looking to the future, BoE BR are predicted to reduce to circa 2.5% by the 2nd Qtr. of 2024, so the hike in Base Rates will be short lived and will result in businesses returning to more robust market pricing in the 2nd Qtr. so, there is a limited window of opportunity to realise your dream of owning your own life style Bed & Breakfast or Hotel.
In summary, Stewart Hindley can not only secure the most competitive commercial mortgage debt for you, but also manages all aspects of the debt raising, ensuring that you are not over paying for your business purchase and that your debt is affordable even if Base Rates increase in the future
To hear more about how Stewart Hindley can help you with a commercial mortgage to buy your life style business, get in touch
