After what can only be described as a tumultuous couple of years for many borrowers, the outlook for 2024 appears a little brighter.
The base rate has remained stable since August 2023, inflation is on a slow, but gradual decline, and the mood in the economy is one of cautious optimism.
For many small business owners and self-employed people, the change in outlook will come as welcome news.
It’s been a tough few years for those trying to run a business, with the global pandemic, soaring inflation, supply chain issues and labour shortages all having a significant impact on the bottom line.
However, as the market begins to emerge from the fog created by these economic headwinds, many small business owners may be starting to consider ways to expand their business offerings and explore future opportunities for growth.
In some of these cases, remortgaging their residential property to release equity and invest in their business could prove to be a viable solution.
While some brokers may be unfamiliar with this type of lending and think that clients looking to explore business expansion plans will need to look at commercial borrowing, it’s important to note that this isn’t always the case.
Remortgaging in order to inject capital into a business can be an extremely useful financial tool for many small business owners and is an avenue always worth exploring for any broker with self-employed clients.
It also presents residential mortgage brokers with the opportunity to tap into an area of the market they may not have previously considered, particularly as official government figures show that small businesses (less than 49 employees) accounted for 99.2% (5.51 million) of the UK’s total business population in 2023.
We have certainly experienced a gradual uptick in the number of enquiries from small business owners looking to capitalise on the wealth accumulated in their home and invest in business growth.
Whether to buy business premises they may have been previously been renting, to purchase stock, equipment or vehicles to expand the business’ reach, or simply pay a tax bill or hire a new member of staff, remortgaging and using the equity accrued in a home has proven an effective way for them to achieve their goals.
For example, one client wanted to remortgage his residential property and use the equity to purchase another vehicle for his expanding tree surgery business.
In another, a couple wanted to borrow money against their home and use the cash to pay down the mortgages on the properties they held within their limited company property portfolio after spending the last few years carrying out refurbishments.
In both cases, the clients provided a detailed explanation of what the businesses growth plans were and how the money would be used to support this. It was also clear that both businesses were on a growth trajectory.
As a lender, we were able to support these unique borrowing needs thanks to our manual underwriting capabilities.
Which meant we could assess each case from a commercial and residential perspective to ensure we were fully armed with all the relevant evidence and risk profile to make an informed lending decision.
The caveat being that we always work closely with our intermediary partners to ensure that such applicants understand the need to seek specialist advice so they are fully aware of the risks or tax implications associated with this type of borrowing.
While there will obviously be cases where this type of borrowing may not be suitable, for any broker with self-employed clients or SME’s looking to expand their business in 2024, remortgaging their home for business purposes could provide the financing they need to help them get started.
So let’s start the conversation.
Ashley Pearson is head of intermediaries at Loughborough Building Society
