Rural Mortgage Case Studies
Case Study #1
As Featured in Farming Life
Magazine - Specialist adivce to buy Surrey Farm |
Case Study #2
Holiday Cottage enterprise becomes
reality |
Case Study #3
Successful first year for Kent
Riding School |
Case Study #2 :
Holiday Cottage enterprise becomes reality
The
designs had been drawn up; the local planners were happy;
the builder was ready to go: Sue Bunn and her partner, Ritson
Riggall, were poised to make their carefully planned Lincolnshire
holiday cottage enterprise become reality. Then came the bombshell
from their mortgage lender - the bank would not finance what
was about to become a commercial property, worse still, it
was quite likely to call in their existing residential loan.
For a brief period it looked as though the
start date for the new business would have to be put back,
missing out on the 2005 holiday season’s trading. Other
potential lenders appeared to take the same view of holiday
letting, says Sue, and with plans for investment of well over
£100,000, financial support was crucial.
At this point a friend recommended a consultancy
to her that specialised in the provision of mortgages for
rural enterprises, Rural and Business Specialists Ltd. The
turnaround was remarkable she says. R&BS Ltd quickly found
them a lender prepared to enter into a commercial mortgage,
helped prepare and present all the paperwork, and recommended
and appointed an appropriate surveyor for the job.
 The
finance problem that faced Sue and Ritson is not uncommon,
and many lenders for residential property will not touch properties
or ventures with a commercial element, says R&BS Ltd director
Jim Richards.
“When clients find themselves in this
situation they often try to get around it by splitting the
title, with separate loans for the residential and business
parts of a property. But this is messy, costly and may affect
the ‘marriage value’ of the two detrimentally
by lowering the overall value, possibly resulting in a loan
offer lower than that needed.
“This can be a particular problem
for farms and other rural properties but because we specialise
in this area we are in a better position to help. We’re
quite used to arranging mortgages over land and dilapidated
buildings, for example, as we know the lenders who will be
prepared to take on such a project,” he explains.
 The
main problem they now had was getting everyone together. Sue,
a freelance IT consultant, and Ritson, a self-employed farm
spraying contractor, lead busy lives and so do the executives
of R&BS Ltd. Eventually, the mortgage deal was done over
coffee at a location convenient to everyone on the A1.
“I wanted to use a broker from the
beginning because I’ve found this the best way to deal
with mortgages in the past,” says Sue. “The consultant
from RB&S Ltd was really on the ball and very quick to
understand the problem and get things moving, which was exactly
what we needed.”
Initially, the news that the couple would
have to get a commercial mortgage, not only for the cottage
development but also for their own house next door, came as
a shock. Now, says Sue, she is glad that it developed that
way, and is convinced by the advantage of the ‘balanced
payment scheme’
 “Historically
I preferred fixed rates because they let you plan finances
properly,” she explains. “However with the balanced
payments scheme we get the benefit of fixed payments but at
a lower variable rate of interest. If the interest rates rise,
the term of the loan is extended; if they fall it is reduced.
This means that we will always make the same regular payments
for the life of the mortgage.
“Over a period of, say, 25 years,
the variation in either direction is unlikely to be significant.
You might find that you finish paying a bit earlier but you
are not likely to have to go on for much longer. In the end
it may work out that you pay a bit more in interest rates
for a commercial mortgage, but the balance payment scheme
does actually help with financial planning,” she says.
Although interest rates for commercial mortgages
are higher than residential ones, the overall effect is marginal
and may even be positive, adds Jim Richards.
“In addition to the balanced payment
advantage which attracted Sue, there may also be tax advantages.
If you are running a commercial venture, the interest element
of the mortgage is a business expense that can be offset against
tax, which may ease the difference between a commercial and
a residential mortgage.”
 Sue
and Ritson bought Croft House at Croft, near Skegness, in
2003. Coincidentally the house and farm land had once been
in Ritson’s family but in this instance it was just
the house, a range of buildings and five acres of land that
was returned to Riggall hands. Built towards the end of the
19th century, Croft House replaced a much smaller farmhouse
that was converted into a garage; this and an adjoining barn
now presented a great opportunity for development into two
holiday cottages.
Armed with their new commercial mortgage
the couple could now get the project moving. The conversion
of the garage, which was to become Custard Cottage, was the
first to be completed by Christmas 2004; and the barn –
now called The Bakehouse – was ready by March 2005,
which was just as well, because by that time bookings were
already rolling in.
“We were let right from the beginning,
and 2005 was absolutely wonderful,” says Sue. “We
thought it would take us three years to get up to 20 weeks
letting - we did it in one. We’re now getting strong
bookings for 2006, including quite a lot of repeats.”
 Both
cottages have been renovated and furnished to a very high
standard, with wood-burners in each sitting room, plus a high-spec
modern kitchen and shower room. Each cottage also has its
own small, secluded garden complete with barbecue equipment
and, in the case of Custard Cottage, a spa pool that has proved
a major attraction to visitors. Custard Cottage offers accommodation
for two people, with one bedroom plus a sitting room/dining
area; The Bakehouse has similar facilities but will sleep
four in two bedrooms
Croft House has also acquired an additional
11 acres of land since Sue and Ritson purchased the property,
now laid to meadow for visitors to enjoy. Hedges around the
meadow have been restored and two hundred trees, mostly native
hardwoods, have been planted. Plans for this year include
a 30 x 15 foot swimming pool and the introduction of six breeding
heifers of the local Lincoln Red breed - in part because Sue
and Ritson like them, in part to reinforce the farming link
that their visitors obviously value.
If you would like to know how R&BS Ltd
could help you fulfil your Rural Property dreams, please contact
us
|
