Lee Rotbart

The fat lady is warming up

In Getting the mortgage on August 18, 2010 at 9:56 am

They say it ain’t over till the fat lady sings… well, she may not be singing, but I can definitely hear her warming up.

Yesterday I was given some bad news about Plan B. The bad news being it hadn’t worked. Apparently the banks are so scarred from all their crazy spending a few years ago that they are demanding an income (from PV) that is 200% more than the business needs to pay out in mortgage.

To those out there, like me, who have very little experience of running a business / getting a mortgage this means that if the mortgage is £31,000 per year the guesthouse must be making £31,000 in profit (before tax), meaning that the turnover must be £62,000 + all the costs of running it + living expenses + wages. As per my cash flow projections we were coming in around 175%, but not meeting that 200% threshold means that we either have to pull £70,000 out of our arse, or ask the vendors to lower the price by that much.

That’s the news, now for the rant.

It’s absolutely bloody crazy that two (relatively) young, accomplished, experienced, intelligent people with a significant 6 figure sum in cash for a deposit, stamp duty, etc. cannot get a mortgage. It’s insane that these banks – who caused the credit crunch in the first place – now have such ridiculous lending criteria that a business with a projected £15k profit in the first year cannot get a loan.

It’s barmy that a 7 bedroom, 4 storey guesthouse which overlooks one of the most popular beaches in the UK, in the heart of the tourist destination of the South West, is not enough collateral on which to base this loan, a loan that isn’t even that much (in the scheme of things). 3 years ago they would have been throwing money at us.

And here’s the real irony. If we were buying this as a residential property our combined incomes (which come to less than our projected 1st year turnover) would have been enough to secure a loan on a 25% deposit, whereas for a commercial mortgage we need to be bringing in more money than that and need a 30% deposit. Go figure?!

Yes… I’m frustrated. I’m frustrated that these hugely greedy banks who are absolutely incapable of seeing past an application number, and looking at the real detail involved, are sitting back on their fat, fat bottoms telling the government that “they are doing everything they can to lend money”. The fact that they’ve considered our application means they can fill in their pathetic little statistic forms and say that they were looking to lend but on this particular occasion the applicant couldn’t meet their criteria, criteria that Bill Gates or Richard Branson would have failed to meet in their early days.

I mean… come on! What business is expected to make a profit in the first year? It’s a given that most businesses need between 1 – 2 years to start turning a profit, so the fact that we were showing a profit in the first year, well – we’re already ahead of the game.

I do apologise for this rant and I know that up until now I have refrained from using this blog to spit fury about banks and all their little ‘computer says no’ minions; please excuse me this one time as there was just no other outlet, and I realised that I wouldn’t be able to get a scrap of work done today if I didn’t vomit all this up onto (virtual) paper. Danny should count his lucky stars that he’s in France as this way it’s the blog that ‘gets it’!

OK… on to Plan C; I have no idea what it is yet but I refuse to believe it’s not out there.

  1. If you’ve not come across this excellent and topical song about the banks – you may enjoy it! As you say, a plan C has to exist. Might there be a few £s of Cornish EU money about you could use?

    • Thank you for this Rich. It’s stupendous. Both articulate, intelligent and tuneful :-). Good call on the EU money… will start looking.

  2. I hope you don’t mind a stranger commenting, but there are several other options you could look at – peer to peer lending with platforms like the lending circle, go to angel investors, get vendor financing (ie deferred payment) from the sellers. if you need anymore ideas or guidance on this stuff, let me know. i’m happy to chat. i’m a former investment banker and once again on a weekend trip to york, i bored my husband with my dreams of opening a b&b over breakfast, so i watch your blog with particular interest!

    • I absolutely don’t mind a stranger commenting. Especially when it’s as helpful as this. 🙂 We’ve broached vendor financing, but they’re not keen; will have a look at peer to peer lending and angel investors. Thanks for the tips. Keep reading, it may be really helpful to chat if we come up against a brick wall in Plan C (whatever that might be).

  3. WTF… the banks not lending you money makes absolutely no sense. What is going on in this country?? I’m so sorry Lee.. I’m very angry on your behalf. Hope you find a plan C x

  4. Wow, Lee, that is such a giant pile of arse. Sorry about Plan B. However, I am confident that Plan C is going to not only materialise, but truly will blow the others away 🙂

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