Releasing Capital for New Business Venture

Posted on 6 December 2010 by Sara Davies


I currently have a property worth £140,000 and my morgage on this property is £90,000. I want to buy a commercial property worth £200,000 and turn it in to my own hair salon business. I have £20,000 saved for cash deposit, would I be able to release equity of £20,000 out of my house to raise the 20% deposit needed to by this property?

Sara

Whilst in theory the answer to your question is yes, I think that in practise you will find this quite difficult to achieve.

The two cheapest options open to you are either to borrow more money from your existing Lender or to remortgage and borrow the additional funds on top of the amount required to repay the existing mortgage. It may be possible to borrow the additional funds from a Secured Loan provider, but the interest rates on these are normally far higher than on residential mortgages. Usually a further advance from your existing Lender is the easiest way to proceed.

However, it is quite possible that your Lender will not consider releasing equity for business purposes or will want to restrict the amount so that your loan to value does not exceed 75%. If you choose the remortgage option, there are Lenders who will consider both the reason and the overall loan size you are looking for.

All Lenders are going to want to check your current income and future earning potential. Unless you are already self employed, have an established client base and can produce evidence of your income they are going to be reluctant to consider a mortgage for a newly self employed person with no track record of running a business. This is where an experienced independent mortgage adviser can help you. They will know which Lender's to approach and how to present your application in it's most favourable light to give you the best chance of securing the funds you require at the cheapest possible rate.

Peter

Answers provided in response to Ask the experts are based on the information provided and do not constitute advice under the Financial Services & Markets Act. They reflect the personal views of the authors and do not necessarily represent the views, positions, strategies or opinions of John Charcol. All comments are made in good faith, and John Charcol will not accept liability for them.

We recommend you seek professional advice with regard to any of these topics where appropriate.

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