Why Are Some Mortgage Lenders Unable to Help With Buying a Flat Above a Shop in London?
Mainstream mortgage providers consider buying a flat above a shop riskier than a conventional standalone residence for many reasons.
Part of this is that commercial properties can potentially disrupt the residential property above.
That could be due to working unusual hours, generating noise or producing smells - for example, a food shop or takeaway.
The values of flats above commercial premises tend to be less stable in terms of market value. Therefore, the lender has less certainty that the property will retain value or appreciate as you make regular mortgage repayments.
Mortgage lenders always consider applications from the perspective of their investment, so they will usually take steps to mitigate their exposure or the potential for the property to be worth less than the outstanding debt.
They may require a higher deposit or not be willing to consider mortgaging this type of property - other lenders will charge higher arrangement fees or interest costs.
What Other Factors Impact Getting a Mortgage on a Flat Above a Shop?
If you're interested in buying a flat above a shop, your mortgage lender may need to know the type of business and how the property is laid out before they can consider making an offer.
These aspects affect the value of the property and the security of the premises - for example, if the main entrance is shared.
The most challenging type of property to secure a mortgage against is a business within categories A3 to A5, including food retailers, licensed premises, restaurants and cafes.
It is more difficult to mortgage this type of flat because those business categories are more likely to carry risks of noise nuisance, making it harder to sell the property eventually.
Before getting a mortgage on a flat above a shop, you should evaluate which lenders are most likely to approve your application, especially if the business downstairs sells food, opens at night, or is a takeaway operation.
Retail premises such as a clothes shop or an office are much easier prospects, and you'll normally find it more straightforward if you're getting a mortgage on a flat above a shop that is considered low risk.
How Can I Get a Mortgage for a Flat Above a Shop or Restaurant?
While it may be more challenging to secure competitive lending from a mainstream mortgage provider, Revolution Brokers are here to help!
We work with a network of reputable lenders who specialise in lending against properties above businesses such as bars, takeaways and restaurants.
These types of flats are often a lucrative investment, with a lower value and ideally placed close to places of work and business.
How Do I Find a Mortgage Lender to Help With Buying a Flat Above a Shop?
Residential properties over businesses are less common than residential mortgages, yet several niche mortgage lenders specialise in this property type.
You can get a mortgage for a flat above a shop to live in or as a buy-to-let investment. You can also purchase existing premises above your own business with a mortgage suited to buying a flat above a shop.
Each lender has its criteria, so it is essential to understand what those are and how they will apply to your circumstances before spending time on applications with lenders who will not be able to offer you lending.
Revolution Brokers are expert mortgage advisors with access across the spectrum of mainstream and niche lenders.
We work with clients, large and small, commercial and private, to identify the most competitive mortgage offers for your specific requirements.
What Deposit Do I Need for Buying a Flat Above a Shop?
Most lenders will ask for a larger deposit, and for mortgage providers who do not specialise in this property sector, this could be of a prohibitive value.
The average Loan to Value (LTV) rate is capped at 85%. LTV means the amount of mortgage lending you can borrow against the property's value.
Standard residential properties may have mortgage options available at 90% or even 100% of the property value, allowing buyers to purchase with a deposit from 0-10%.
Your typical LTV is likely to be:
- Capped at 85% for a flat above a shop - 15% deposit required
- Capped at 75% for a flat above a restaurant - 25% deposit required
- Capped at 60% for a flat above a takeaway - 40% deposit required
What is Classed as Commercial Premises if I Am Getting a Mortgage on a Flat Above a Shop?
A commercial premise is a property that carries out business and is accessible to the public. This classification covers all types of business, from pubs and cafes to shops and banks.
Mortgage lenders consider the business categories to determine which they will and will not lend against. The most common classes used in buying a flat above a shop are:
- A1 - general shops such as newsagents
- A2 - professional services such as estate agents
- A3 - food and drink establishments such as restaurants
- A4 - drinking establishments, including pubs and bars
- A5 - food takeaways and retailers
You will need to know which category the business falls into before you start the application process for getting a mortgage on a flat above a shop.
This information will help your lender decide whether it is something they can lend against, and whether the mortgage for a flat above a shop fits their lending criteria.
If you are unsure which category applies, whether you can get a mortgage for your flat, or which option is best for you, give us a ring on 0330 304 3040.
Revolution Brokers have years of experience in securing niche mortgages for our clients, including those buying a flat above a shop, and we are here to help.
