Remortgaging a home to buy a commercial property?

V

vf949

Registered User
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Hi Folks,

Assuming that I have the earnings to do it is this possible:

  • Build a new home (currently renting) with existing savings and a relatively small loan from a parent.
  • Then live in new home for a few years
  • Then buy a commercial property and get a mortgage on the home to free up cash to pay for the commercial property.

My wife already has a rental property so it would not be a 1st time buyer mortgage.

I know I could just get a mortgage now to build the new home and keep some cash aside to buy the commercial property but I don't want to have to start paying interest until I have to.

I also know that I could just get a commercial loan to buy the commercial property if and when it's needed but that would have a higher interest rate than a mortgage and would be for a shorter term.

Thanks in advance
 
vf949 said:
I also know that I could just get a commercial loan to buy the commercial property if and when it's needed but that would have a higher interest rate than a mortgage and would be for a shorter term.
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I'm pretty sure you would have to explain why you need the mortgage. Unless it is to purchase the house, undertake significant rennovations or extensions (which will require evidence) or to pay off an existing mortgage it is unlikely you will get it.
 
newtothis said:
I'm pretty sure you would have to explain why you need the mortgage. Unless it is to purchase the house, undertake significant rennovations or extensions (which will require evidence) or to pay off an existing mortgage it is unlikely you will get it.
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Thanks for your help. Maybe to pay back the family loan could be the reason?
 
Would be risky to depend on that in the future, who knows what sort of lending will be available. I would say you would definitely not be able to release equity on a family home to fund a commercial purchase

For your other suggestion of it being used to pay back the family loan then make sure you have something formal in place to back up the loan and show it exists. Money laundering regulations alone will mean the bank will want proof of where the money is going. That's not to say that it would still work but at the very least you will need documentation.
 
A very, very interesting question.

vf949 said:
Then live in new home for a few years
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What do you mean by "a few years"?

How do you know that it will be appropriate for you to buy a commercial property in a few years?

Could you buy the commercial property now and let it out for a few years until you are ready to occupy it?

If a few years is more than three, which I assume it is, then you should not really plan that far ahead with any precision, as plans change.

As far as I know, Pepper is the only lender which will offer a remortgage on a family home to do something other than extend the home.

But in 3 years that may well change. There is no real reason why a lender should not give an 80% LTV loan on a family home for the borrower to buy a commercial property. That is very good lending as it's doubly secured. If I were a bank, I would lend to you at home loan rates but would ask for the security of both properties.

vf949 said:
My wife already has a rental property so it would not be a 1st time buyer mortgage.
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This is part of the reason why I would not recommend doing too much planning at this stage. In a few years, it might make sense to sell your wife's property and use the proceeds towards the commercial property.

There are too many balls up in the air at the moment, so do what is best for now. Build your house with your cash. Borrow the small amount from your parents and repay that as soon as possible. When you are ready to buy the commercial property, do what is best at that stage.

Brendan

An important point to note for the future
If you do manage to raise a loan secured on your family home to buy a commercial property, you can get full interest relief against any rental income on that mortgage. It is exactly the same as if you had secured the money on the commercial property.

On the other hand, if you take out a mortgage to buy your family home and use your cash to buy a commercial property, you will get no interest relief on the mortgage interest.

Let's look at it another way. Say you have €300k cash today. You want to buy a family home for €300k and you also want to buy a commercial property for €300k. You can borrow for the home at 3% but the rate on the commercial property is 4%.

You may well be better off buying your home for cash and borrowing to buy the commercial property. with 40% tax relief on the interest paid, the effective interest rate would be 2.6%.

Of course, the ideal thing would be to buy the house for cash. And then remortgage it at 3% to buy the commercial property as the effective interest rate would be 1.8%.
 
Hi Brendan,

Thank you for putting the effort into giving such a detailed response.


The thing is I don't know how long a few years is, it may end up being 1 year or it may be 10 years! The commercial property that I have mentioned is agricultural land. The land would need to come up for sale locally for me to buy it and this could happen at any time or it may not come up for sale at all. It is just something that I would like to do and I wanted to be somewhat ready for it if it does happen.


I think you may be right. Probably best to deal with one thing at a time and get them payed off as quick as possible before doing more.


I hadn't thought of this but now that you have said this it would be madness to use money from a personal mortgage to buy a commercial property. Even if the mortgage is at a lower interest rate than a commercial loan, because the interest on the commercial loan would be tax deductible it would be the cheaper option.

Thanks again.
 
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