Flat Above Shop Mortgage
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Flat Above Shop Mortgage
Sam Bull talks us through the mortgage process for Can you get a Flat Above Shop Mortgage.
What is a flat above a shop called – has it got a name?
There isn’t really a specific name for flats above a shop used by mortgage lenders. What’s more important to a mortgage lender is the type of shop that the flat is above – for example, if it’s a food outlet, an office, commercial building or a pub. But there isn’t really a name that mortgage lenders use.
Why is it difficult to get a mortgage on a flat above a shop? Are lenders not offering mortgages on these flats?
There are definitely providers who will offer mortgages on flats above shops – that’s the good news. But it’s important to mention that every flat is different. Any mortgage recommendation we would give would be tailored to the specific flat you’re looking to buy.
In general, mortgage lenders do take a more cautious approach when lending on flats above shops. It’s because the shop may disturb the residential property above it. If the shop has late opening hours, for example, that could cause noise late at night. If it sells food, there could be unwanted smells or waste nearby that could affect people in the flat.
These kinds of disturbance to the residential flat can affect demand for these types of properties. Mortgage lenders may have concerns about the saleability of the property if they needed to repossess it later down the line. Because of that, mortgage lenders will carry out quite a lot of due diligence on flats over commercial premises.
What’s the difference between a commercial mortgage and a residential mortgage?
A commercial mortgage is used to purchase property or land for business purposes. That would usually be retail shops, warehouses, offices, pubs, taxi ranks, etc. A residential mortgage is used to purchase a property as your residential home, to live in.
What deposit would I need to purchase a flat above a shop?
If you’re buying a flat above a shop to live in, you may need as little as a 5% deposit. It would depend on the type of shop below the flat.
But that 5% deposit may need to rise up to 40% deposit – a lot of it will depend on the property itself. If you’re buying a flat above a shop to rent out, you’ll need a Buy to Let mortgage, which typically requires a minimum 25% deposit.
Again, depending on the type of shop that the flat is above, you may need a higher deposit for a Buy to Let mortgage – that could be again up to 40%.
How much can you borrow on a mortgage for a flat?
It’s different for residential and for Buy to Let. If you’re buying a flat above a shop to live in, lenders will use a standard residential affordability calculator to work out how much you can borrow. This is usually between three and five times your income. Some mortgage lenders may lend slightly more, some slightly less. It will depend on your personal circumstances.
If you’re buying a flat above a shop to rent out, mortgage lenders don’t use your personal income to calculate borrowing. Instead they use a Buy to Let calculation based on the monthly rental income that the property would generate. Mortgage lenders typically need the rental income to cover an interest only mortgage payment by at least 125% – but we’ll work out all that for you.
What are the advantages and disadvantages of buying a home above a commercial property?
The location of the property could make it cheaper, so you might get quite good value for money. You might potentially be able to move into an area that you would otherwise be priced out of.
Younger applicants and First Time Buyers are often comfortable buying houses above commercial properties, as they are often in a city centre location with really good commuting links and access to local amenities. Homes above commercial properties might also offer larger living spaces that you may not find in a traditional flat.
There are also some disadvantages to buying a home above a commercial property. As I mentioned earlier, only a small number of mortgage lenders will consider lending against flats above commercial properties. It’s likely to mean that your mortgage might be more expensive than on a traditional flat.
Following on from that, mortgage challenges could mean the demand for flats above commercial properties is a lot lower. You might struggle to sell the property in the future and it may not grow as much in value over time as a traditional flat.
Other things to consider when buying a home above a commercial property are the potential for unwanted smells or noises from the premises below. If it’s a 24 hour supermarket or a taxi rank, there may be a lot of noise in the early hours. It’s important to weigh up these pros and cons and see what’s right for you.
Can I get a mortgage for a flat above a pub?
Yes, we do have mortgage lenders who can potentially lend on flats above a pub. They will carry out extra due diligence at the valuation stage, and there may also be additional criteria that you need to meet.
For example, some lenders may restrict the maximum loan to value to 65%. Some may need the flat to meet a minimum property income of £150,000 – or £300,000 if the flat is in London. Other lenders need there to be one clear floor between the pub and the flat.
In all cases, the mortgage application would be subject to the valuer confirming that the flat is suitable security. These types of flats are usually considered on a case-by-case basis. So the full due diligence needs to be done on the flat before any mortgage application is submitted.
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Everyone’s different. You might be self-employed. You might have some credit history issues – whatever your situation, we will find the most suitable product available to you from across the whole market.
Can buying a flat above a shop be freehold?
It can be freehold, but the vast majority of flats above shops are leasehold. This would not usually be something you need to worry about. If you do locate a freehold flat above a shop, I would recommend speaking with your mortgage broker before making an offer, as mortgage options would be really limited on these types of properties.
Do lenders offer mortgages for flats above supermarkets?
Yes, we do have mortgage lenders who can offer both residential and Buy to Let mortgages for flats above supermarkets. Mortgage lenders will rely on the valuer recommending that the property is suitable security for lending.
They’ll consider factors like resalability, the hours that the supermarket operates and potential smells and noise. So it’s important to speak with your mortgage broker, as not all lenders have an appetite to lend on these types of properties.
What if I’d like to buy the commercial premises as well?
If the property you’re looking to buy has mixed use as both residential and commercial, that would usually fall outside the standard lending criteria for a residential mortgage.
Each case would be considered on its own merit, but it would most likely be a semi-commercial mortgage that you would need. With these types of properties you really do need to speak with a mortgage broker. We’ll take a really good look at the property and recommend a suitable type of finance.
Where can I get a mortgage for a flat above a shop?
These types of mortgages do require additional checks and due diligence. So I would recommend speaking with a mortgage broker with experience in dealing with mortgages for flats above shops, like us here at J B Mortgages.
Is it possible to get a residential mortgage on a flat above a business, or is it only available as a Buy to Let?
You can get both residential and Buy to Let mortgages on flats above businesses. It will just depend on what your plans are for the flat.
Are Buy to Let products available for getting a mortgage on a flat above a shop?
Yes, absolutely. If your intention is to buy a flat above a shop to rent out, you’ll need a Buy to Let mortgage. We would review the property, its location, the type of shop below and the anticipated monthly rental income the flat would achieve. Then we’ll be able to make a suitable Buy to Let mortgage recommendation.
What is classed as commercial premises if I’m getting a mortgage on a flat above a shop?
The different types of commercial premises are shops, retail outlets, taxi ranks, bars, restaurants, offices and factories. Those are the main types of commercial premises.
What factors could impact a mortgage on a flat above a shop or business?
The main factor that impacts a mortgage on a flat above a shop is the type of business it is. Whether it’s an office, a retail shop or food outlet, mortgage lenders will take a different view. Mortgage lenders are generally going to rely on the valuer’s comments to decide if the property is suitable for lending or not.
Can I mortgage dual purpose premises for my shop and flat?
This would be classed as mixed use for both residential and commercial. It usually falls outside the standard lending criteria for a residential mortgage and fits more into a semi commercial type of mortgage. Again, we would do the due diligence on the property and business to make a suitable recommendation.
Is it hard to sell a flat above a shop?
Yes, it may be harder to sell a flat above a shop than a traditional flat, as there may be less demand for these types of properties. There may potentially be disturbances such as noise, food smells, late opening hours etc., so it might be slightly harder. But that doesn’t mean that there’s no demand at all for these types of properties.
Do I need a guarantor for a mortgage on a flat above a shop?
No, you don’t need a guarantor for a mortgage on a flat above a shop. It’s just like any other mortgage – it would just come down to your individual circumstances.
Can I get a mortgage for a flat above a shop with bad credit?
Yes, you can get a mortgage on a flat above a shop if you have bad credit. We would request a copy of your credit report. We usually recommend Checkmyfile because it shows your Experian, Equifax and Transunion credit report all in one.
The severity of bad credit would influence your mortgage options – so again, it’s important to speak with a mortgage broker. We’ll review your credit report and give you a suitable mortgage recommendation.
Is there a maximum age at which I can mortgage a flat above a business?
If you were looking to buy a flat above a business to live in, it would be the usual mortgage lenders residential criteria. Generally banks don’t like to lend past your retirement age.
If you’re looking to purchase a flat above a business as a Buy to Let, there are fewer age restrictions. Mortgage lenders are happy to lend up to age 80 or 90 for Buy to Let properties.
What size mortgage can I apply for on a flat above a shop?
Some mortgage lenders will have a minimum floor size requirement for studio flats, which is 30 square metres. But plenty of mortgage lenders don’t have any size requirements for flats. It would essentially come down to the details of the individual flat, and each mortgage lender would have a different requirement for that.
How can I get a mortgage for a flat above a shop or restaurant?
Each flat is so different, and the type of shop or restaurant can vary widely. So it’s important to speak with your mortgage broker. Show them the property and they will consider the location and potentially rental income, as well as the type of shop or restaurant below the flat. They’ll then be able to make a suitable mortgage recommendation.
How do I find a mortgage lender to buy a flat above a shop, and how can a broker help find a lender for flats near commercial premises?
Not all mortgage lenders have an appetite for lending on flats above shops, so it’s important to apply to the right ones. A mortgage broker like ourselves, with experience in arranging mortgages on flats above shops, will be able to do all the due diligence on the property before any mortgage application is made.
We’ll make a suitable mortgage recommendation so you’re applying to the correct mortgage lender. The whole point is to find a mortgage that offers you optimal value based on your circumstances.
Your property may be repossessed if you do not keep up with your mortgage repayments.
The Financial Conduct Authority does not regulate most Buy to Let Mortgages.