A couple buying a holiday let above a seaside café were turned down by a well-known bank that says it lends on flats above shops. Here is how Drake found a lender that said yes.
The Client
Sarah and Tom live near Bristol and had been holidaying in South Devon for years. Both are employed, they own their own home with a modest mortgage, and they have a clean credit history. This was to be their first holiday let.
| The Case | Details |
| Clients | Sarah and Tom, a married couple in their early fifties, both employed |
| Property | Two-bedroom flat on its own title, above a café on a seaside high street in a South Devon harbour town |
| Tenure | Leasehold, 960 years remaining, lease permits holiday letting |
| Purchase price | £265,000 |
| Loan required | £198,750 (75% loan to value) |
| Purpose | Holiday let, with limited family use |
The Objective
They had found a two-bedroom flat on Fore Street in a South Devon harbour town, a few minutes’ walk from the quay. The flat sits on its own leasehold title above an independent café, with its own street door to the side of the shop front.
The plan was simple.
Let the flat through a local holiday letting agency for most of the year, use it themselves for a few weeks out of season, and have it ready for bookings by the following Easter.
The Complication
Before speaking to us, Sarah and Tom went direct to a well-known small bank that offers holiday let mortgages. Its criteria say it will consider flats above commercial premises, so the case looked straightforward.
The bank’s valuer inspected the flat and noted that the café below serves hot food, with a commercial kitchen and an extraction flue running up the rear wall of the building. The bank’s underwriters declined the application on the grounds of the commercial use below.
By the time Sarah and Tom contacted Drake, they had paid for a valuation, lost several weeks, and the seller’s agent was asking whether they could still proceed.
Related reading: Is the Property You Intend to Buy Suitable for a Holiday Let?
How We Assessed Options
We started with the details the decline turned on: what the café is, how it trades and how the flat is separated from it. We obtained the café’s opening hours, details of the extraction system and confirmation of the lease terms, including the clause permitting holiday lets.
We then looked at three possible routes.
| Route | What we found | Outcome |
| Mainstream holiday let lenders | Several accept flats above commercial premises, but most refer or decline where a café kitchen is directly below. | Ruled out. The same objection the bank raised was likely to come up again. |
| Specialist lenders on Drake’s own panel | Comfortable with the café below, but not with holiday let income on this property type. Long-let assessment only. | Ruled out. The clients wanted a holiday let, not a long let. |
| Specialist lender via a master broker | Assesses each case by hand. Willing to consider a holiday let flat above a café, subject to the valuer’s comments. | Identified as the right route. |
Step 1: Other mainstream holiday let lenders
We contacted several mainstream holiday let lenders to test the case. Each one either confirmed it would decline or said it would refer the case with little chance of approval, because of the café kitchen directly below. Putting Sarah and Tom through a second valuation on the same basis would have cost them more time and money for no real gain.
Step 2: Specialist lenders on Drake’s own panel
Two specialist lenders we work with directly were comfortable with the café below. However, both would only assess the flat on a long-let basis. That would have limited the loan and defeated the purpose of the purchase.
Step 3: A specialist lender through our master broker contacts
Drake works alongside a number of specialist master brokers, which gives us access to lenders beyond our own panel. Through one of these contacts, we identified a specialist lender that underwrites each case by hand and will consider holiday let flats above food premises, subject to the valuer’s comments.
Identifying the Right Route
We presented the case to the lender in full before any valuation was booked. That included the café’s daytime trading hours, the separate street access to the flat, the lease clause allowing holiday lets and a holiday letting agent’s income projection across the high, mid and low seasons.
The lender confirmed it was willing to proceed, subject to its valuer being satisfied with the fire separation between the café and the flat and the position of the extraction flue.
We were clear with Sarah and Tom that the rate would be higher than a mainstream holiday let mortgage and the valuation fee a little more. Set against losing the flat, they were happy to go ahead. We also explained that once the flat has a trading record, it may be possible to review the mortgage when the initial product ends.
The Outcome
The lender’s valuer reported that the fire separation and extraction were satisfactory, and a mortgage offer was issued at 75% loan to value. The purchase completed in time for the flat to be furnished and listed with the letting agency before Easter.
Sarah and Tom now own the holiday let they wanted, in the town they know, and the café below has turned out to be a selling point with guests.
This case study is an anonymised, illustrative scenario based on the type of case Drake Mortgages handles. Names, locations and figures have been changed. Every case is assessed on its own circumstances, and lender criteria change over time.
You might also like
-
Case Study: Mixed-Use Commercial Purchase of a Let Shop and Holiday Let Flat on One Title
A couple bought a freehold seaside building with a long-established shop tenant downstairs and a flat they wanted to run as a holiday let upstairs….
-
Holiday Let Flat Above a Shop: How to Get a Mortgage
Many high street lenders turn down a flat above a shop. Specialist lenders will consider most of them, including flats above restaurants, takeaways and even…