Are you considering buying a flat above a shop?
If so, you might be wondering about the feasibility of getting a mortgage for such a property.
In this article, we’ll delve into the details of securing a mortgage on a flat above a shop, helping you understand the process, the potential hurdles, and the solutions available.
What is a flat above a shop?
Firstly, let’s clarify what we mean by getting a mortgage on a flat above a shop.
Essentially, it’s a property purchase where the residential flat you intend to buy is situated above a commercial property, such as a shop, office or a restaurant.
You will generally be buying this as a leasehold flat and it will be self-contained with its own entrance etc. It could just be one flat by itself or there could be a few, depending on the overall size of the building.
These flats often appeal to buyers due to their convenient locations and more affordable prices.
They can also be attractive to investors looking for buy-to-let opportunities, given the potential for rental income from tenants who value the convenience of such locations.
Why Lenders May Be Cautious
When it comes to accommodation above shops, it’s important to understand why some lenders might be cautious.
The main reason is the perceived risk associated with such properties. Factors such as noise, smells from the shop below, and high footfall can potentially affect the property’s value and its appeal to future buyers or tenants.
For instance, a flat above a quiet bookshop will be seen as less risky compared to one above a bustling high street takeaway restaurant that operates late into the night.
These factors can impact the property’s maintenance needs, potential for damage, and overall desirability, which in turn can affect the lender’s willingness to offer a mortgage.
When assessing a mortgage application the lender will be making a decision on you and the property. If the worst happens and they need to repossess the flat, it needs to be sellable, command a good price and be desirable to different buyers.
Types of Mortgages Available
Despite the potential challenges, it’s certainly possible to secure a mortgage on a flat over a shop or commercial business.
The types of mortgages available typically include residential and buy-to-let mortgages. However, due to the unique nature of these properties, these mortgages might come with certain conditions or requirements that differ from standard mortgages.
For instance, you might need to provide a larger deposit to offset the lender’s risk. It’s also worth noting that not all lenders offer mortgages for flats above shops, so you might need to explore options with specialist lenders or seek advice from a mortgage broker.
Key Considerations When Applying for a Mortgage
When applying for a mortgage there are several key considerations to keep in mind:
Type of Business Below
The type of shop or business operating below the flat can significantly impact your mortgage application. For instance, lenders will be more willing to lend if the shop below is a quiet, low-risk business such as a florist or a bookshop, compared to a busy takeaway restaurant or pub that stays open until late.
Property Layout and Access
The layout of the flat and any shared entrance points with the shop can also affect your application. Lenders will prefer properties with separate entrances for the flat and the shop, reducing potential disruptions for the residents.
Business Category of the Shop
The business category of the shop or restaurant below the flat will also play a role in the lender’s decision. For instance, businesses categorised as *A3 to A5 (restaurants, pubs, and takeaway outlets) will be seen as higher risk due to potential issues such as noise, smells, and late operating hours. Some lenders will not grant loans where the flat is over or adjacent to these types of shops. *Now classified as Class E and Sui generis.
Leasehold Length
When buying a flat, you’re typically buying the leasehold rather than the freehold of the property. The length of this leasehold can affect your mortgage application if it’s too short. Lenders typically prefer leases that are longer than the proposed mortgage term plus an additional 40 years. So if the lease is less than 60 to 70 years, some lenders might have reservations about offering a mortgage. If this is the case, talk to us about Short lease bridging loans.
Lenders
While some lenders might be hesitant to offer mortgages for flats above shops, there are plenty who do.
These include both high-street banks and specialist lenders. Each lender will have their own specific criteria and conditions, so it’s important to do your research or seek advice from a mortgage broker to find the best fit for your needs.
The exact type of business below and the years remaining on the lease will be key factors in determining which lenders to look at.
Some lenders might offer more favourable terms if you have a good credit score, while others might be more flexible if you’re planning to let out the property.
The Role of a Mortgage Broker
Given the unique challenges previously mentioned, it can be incredibly beneficial to work with an independent mortgage broker.
A broker can guide you through the process, helping you understand the requirements and navigate the potential hurdles. They can also help you find the most suitable lender and mortgage product for your needs, saving you time and potentially a lot of stress.
The list of potential lenders is reduced when a flat is located above a shop. This can further be diluted by the nature of the business underneath.
We will know the lenders that accept the type of flat you wish to buy, and often these are with specialist lenders, not accessible to the public.
Furthermore, a broker can assist with your mortgage application, ensuring that you present your case in the best possible light to potential lenders.
When you are ready please give a call on 020 8301 7930 to have an initial chat with one of our expert brokers.
Tips for a Successful Mortgage Application
If you’re considering buying this type of flat, here are some tips to increase your chances of mortgage success:
Prepare Your Finances: Ensure that your finances are in order. This includes having a good credit score, a stable income, and enough savings for a potentially larger deposit.
Gather Your Paperwork: Don’t leave this until the last minute! Spend some time collating your most recent payslips, CIS vouchers and bank statements. Six months worth should be OK. You will also need to provide proof of your deposit (statement), and proof of ID and address.
Understand the Property: Get to know the property and the shop below. What business are they in? What hours do they open? Do they attract a large footfall? Understand the potential risks and how they might affect your mortgage application (and you).
Work with a Broker: Consider working with a mortgage broker like Drake Mortgages who can guide you through the process and help you find the best mortgage product for your needs. You will have so much more choice and support.
Consider the Leasehold: Check the length of the leasehold on the flat. If it’s less than 60 to 70 years, you might need to negotiate a new, longer lease with the freeholder, which will probably add to the cost of buying the property.
And finally
Securing a mortgage on a flat above a shop can be a complex process, but it’s certainly achievable with the right preparation and guidance.
By understanding the potential challenges, planning ahead and working with a mortgage broker, you can navigate the process more smoothly and increase your chances of success.
Remember, every property purchase is unique, and what works for one might not work for another. Therefore, it’s crucial to do your research and seek professional advice tailored to your specific situation and needs.
- About the Author
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Kerry is an award winning whole of market mortgage broker and Head of residential and buy to let mortgages.
Kerry joined Drake Mortgages in 2013 as a mortgage broker and has extended her mortgage experience to include bridging finance, self-build mortgages and so on.
