How To Raise Money Against Your Home For Business Purposes

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The information contained within was correct at the time of publication but is subject to change.

6th February 2025

I recently had the pleasure of helping a financial adviser I've worked with on and off for several years. They approached me to explore options for managing a loan they'd taken out to help with their business.

You may or may not know, when financial advisers retire, they often sell their client book to a successor, ensuring their clients continue to receive trusted advice. This purchase can be a significant investment, and sometimes the adviser's firm will provide a loan to help facilitate the transition. In this instance, the adviser was looking at ways to manage the loan used to purchase a client book. They were interested in the possibility of raising funds against their home, specifically via an interest-only mortgage. Their thinking was that this would allow them to repay the firm loan, and also reduce their monthly outgoings. This, in turn, would free up more of the income generated by the acquired client book, allowing them to make strategic investments. The hope was that these investments would enable them to pay off the mortgage more quickly than with a standard repayment plan. After all, as a financial adviser themselves, they were well-versed in the intricacies of financial planning.

This scenario, while seemingly straightforward, presented some unexpected challenges. Many lenders classified the loan purpose as either debt consolidation or raising capital for business purposes. While neither is problematic in itself, the size of the loan meant we had to undertake considerable research to find the right solution. Successfully navigating these complexities and securing the appropriate mortgage proved to be a particularly rewarding exercise. 

In this blog we'll look in more detail at raising money against your home for business purposes.

Working with business owners is something we do every day.

As a business owner myself, I understand the frustration of having exciting projects you want to pursue, but lacking the necessary capital.

It can be particularly disheartening when those funds are tied up in your home, seemingly out of reach when they could be used to grow your business and boost your income.

The example I shared earlier, where a financial adviser needed to repay a loan for a client book purchase, is a perfect illustration.

I've also helped clients in other situations, such as the café owner who used equity from their home as a deposit on a second location.

The key takeaway here is that if you own both a property and a business, and you're looking to raise capital for business investment, exploring your mortgage options could be a viable solution.

While many lenders are willing to assist with raising funds for business purposes, their approaches can vary significantly.

Gathering all the necessary information upfront is crucial, as it allows me to provide the most effective and tailored advice.

When discussing your needs with lenders, they'll invariably ask about the intended use of the funds.

Generally, they prefer to lend to established businesses and are less inclined to finance new ventures.

They'll also scrutinise the business's financial health; if the business appears to be struggling, further borrowing is unlikely to be approved.

Lenders are also typically cautious about loans intended for repaying existing business debts or settling tax liabilities, although some exceptions may exist.

Similarly, using borrowed funds to address cash flow issues, such as covering recruitment, marketing, or wages, is generally viewed unfavourably.

When considering mortgage repayment, you have several options: repayment mortgages, interest-only mortgages, or a combination of both.

Lenders assess applications holistically, and their willingness to lend for business purposes, particularly on an interest-only basis, can vary.

Some might approve raising funds for your business but not on an interest-only basis, while others may be open to an interest-only arrangement but not for business investment.

And, of course, some lenders will be comfortable with both.

It all hinges on your proposed repayment strategy.

For example, your plan might involve selling the business and/or your home upon retirement, then downsizing to a smaller property without requiring a mortgage.

Alternatively, you might have substantial pension funds or investment portfolios that you intend to use for mortgage repayment at the end of the term.

We can discuss your intended repayment strategy and assess the feasibility of applying for an interest-only mortgage in your specific circumstances.

Raising funds against your home to invest in your business carries significant risks.

A key consideration is what would happen if the business were to fail.

Could you comfortably maintain your mortgage repayments, or would you face the prospect of selling your home?

Increasing your debt also brings added stress.

Higher monthly payments might mean sacrificing other things you enjoy, like family outings, dining out, holidays, or even needing to downgrade your car.

Extending your mortgage term to manage the increased payments could push your repayments past your state retirement age.

Is this a realistic scenario, and is it something you're comfortable with – still paying a mortgage while relying on your pension?

The added financial pressure of a larger mortgage can also take a toll on your health.

If you're already prone to stress, it's important to consider whether you want to increase that burden.

Of course, there's also the potential upside.

A successful business could generate significantly more income, allowing you to repay the mortgage early, enjoy more family holidays, and perhaps even retire sooner.

However, it's vital to remember that this is a potential outcome, not a guarantee.

Before making any decisions, it's essential to thoroughly consider all possibilities, both positive and negative.

Careful planning and a clear understanding of the risks involved are absolutely crucial.

Our expertise lies specifically in mortgages, and while we can guide you on those aspects, we strongly encourage you to explore all available options that might be more suitable for your circumstances.

Talking to your bank about potential support is a valuable first step.

Depending on your business stage and needs, seeking angel investment could also be a viable route to explore.

Numerous financing avenues exist, and it's essential to choose the one that best aligns with your long-term business goals and financial situation.

Just like any mortgage application, a healthy credit report is essential. Lenders will meticulously review your current mortgage and any other debts, looking for evidence of consistent payments and no missed payments.

If they perceive you as over-indebted, your application may be declined.

Recent credit issues might require a period of one or two years of clean credit history before a lender will consider your application. We always advise obtaining a copy of your credit report before applying for a mortgage. This allows you to see all outstanding debts and confirm everything is up-to-date, ensuring you're fully prepared for the lender's assessment.

If you're looking for a credit report, we recommend Check My File.

Raising funds against your home for business investment can have tax implications.

While we're unable to provide specific tax advice, we're happy to connect you with qualified tax advisers, accountants, or financial advisers who can give you the tailored guidance you need.

Just let us know if you'd like a recommendation.

When considering raising funds against your home, determining the right amount to borrow is crucial.

While the temptation to borrow more than needed might be strong, lenders require precise figures, especially when the funds are for business purposes.

If, for example, you're repaying a loan to your financial adviser firm for a client book purchase, they'll likely request confirmation of the outstanding balance.

Similarly, if you're buying a vehicle or equipment, lenders may ask for a formal quote.

It's also important to be aware of Loan-to-Value (LTV) limits, as these directly influence the interest rate you'll be offered.

Generally, mortgages below 75% LTV attract lower interest rates than those exceeding this threshold.

LTV brackets typically increment every 5% between 60% and 95%, and crossing into a lower bracket often results in a better rate.

This is a key factor to consider when deciding how much to borrow against your home.

Lenders assess affordability based on your current financial situation.

While a successful business investment could lead to increased income, this isn't guaranteed, and there's often a lag before any returns are realised.

For sole traders, lenders typically require the past two years' tax calculations and, ideally, an accountant's reference.

Even if you don't currently use an accountant, they may still request a reference, which would incur a cost to you.

Limited company directors should be prepared to provide the last two years' full company accounts, tax calculations, tax year overviews, and an accountant's reference.

I’ll run through a full affordability calculation with you once I have all your documents and tell you how much you would be able to afford.

You might find the following blog useful: Mortgages for the Self-Employed

If you're self-employed and looking to raise money against your home for business purposes, the best thing to do is get in touch as early as possible so we can go through your options and make sure you are prepared. I can complete my research and present you with a recommendation personal to you. I'll provide you with a list of documentation that I will need which you can forward on to your accountant, or ask me to deal with your accountant directly.

Complete the form below and we'll be in contact within a working day.