If your flat hunting efforts leave you thinking a flat above a shop is the best option for you, you’ll want to arrange your finances as soon as possible. You might not have given it much thought, but some lenders have concerns about arranging a mortgage for a flat above a shop, and this guide considers what you need to do to agree finance for this style of purchase.
Can you arrange a mortgage for a flat above a shop?
Yes. While not every mortgage lender will provide funds for this property purchase, buyers should have multiple offers. Depending upon the type of shop that is below and whether you intend to live in the property or rent it out will have an effect on how much deposit you will need to put down. Mortgaging a flat above a shop follows the same process as a standard mortgage, however not all lenders are happy securing a mortgage on a flat above a commercial property – so it is important you seek advice in this area.
Does it matter what type of shop is below the flat?
Yes, the business operating below the flat will impact a mortgage application.
If the shop hosts a business such as a letting agent or travel agent, there will be minimal notable impact on lenders.
However, if the shop is a takeaway, there will be concerns. This is because smells from the shop, people loitering around the shop, potential littering and late-night hours impact demand for the flat above the premises. Some lenders will have concerns about demand for the property when selling and might be reluctant to provide a mortgage for the property.
Valuation is always crucial when arranging a mortgage
Valuation is always a critical component of any mortgage application, and with a flat above a shop, more factors influence the property’s potential value.
Is the shop standalone with no other shops around it, or are there shops on either side or across the road? The number of shops in the local area affects noise, parking, and people milling around, and these are factors which shape demand.
As stated earlier, the type of business will also impact demand. Some buyers might think living above a pub sounds excellent for socialising, but your home life is less appealing if there is continual noise late at night.
You also need to consider access to the flat. Is there a separate entrance, can you access the property easily and quickly, and is there parking? Is this less convenient if the only entrance is at the side or rear?
How long is the lease for?
When buying a flat normally you are buying the leasehold i.e. the area of the flat rather than the freehold which is the whole building. The length of this lease is important when buying a flat.
Mortgage lenders typically are looking for a leases longer than the proposed mortgage term plus an additional 30 years. If the lease is less than 60 to 70 years, some lenders will have concerns about offering a mortgage.
It is possible to renegotiate a new longer lease with many freeholders on completion of the purchase, but this adds to the cost of buying property.
What is the buyer’s intent with the flat above the shop?
If the buyer intends to live in the property, mortgage lenders will consider if an applicant can afford the move. They will consider all costs and borrowings, not just the mortgage payments. A lender will also view the credit profile of an applicant. Potential buyers with good credit will receive more attractive offers, but there are bad credit lenders who can help people requiring more support if they have marks on their credit profile like missed payments, defaults or county court judgements.
If the buyer intends to let the property, affordability is still relevant and this is mainly based upon the possible rental income that can be achieved.
Potential landlords should work with experts here to build a compelling mortgage application. Tax advice is essential and can impact finances and business plans. It is also helpful to speak with a letting agent to determine the type of tenant most likely to rent the property. It might be that letting to a single household is best, or converting the flat to a house of multiple occupants (HMO) may better suit the landlord’s aims, either way your broker/lender will want to know what your plans are to put in place a suitable mortgage.
Speak with a specialist broker when buying a flat above a shop
Given the unique challenges of buying a flat above a shop and the fact some lenders will not provide a mortgage in this situation, it is best to speak with a specialist broker with a track record in this line of work. Their guidance saves time and helps you find the most suitable lender with a range of mortgage products for your needs.
What credit score do I need for a mortgage above a shop?
To qualify for high street lenders you need to have a good credit score, however there are many building societies and specialist lenders available through mortgage brokers that do not credit score applications, instead they run a credit check and cross reference this against their lending criteria. Where you have a low credit score or bad credit registered there are lenders available, however seeking advice in this area is important to save you time and disappointment.
Before looking at buying a property it is always worth reviewing your credit report with the main credit agencies Experian and Equifax. Your broker will request a copy of your credit report, so best to have it ready.
How to explore your mortgage options with The Money Hub
If you are looking to buy a flat above a shop and need a mortgage, help is available.
Call The Moneyhub Limited on 0203 725 5830 and speak to one of our highly specialised and dedicated Mortgage Advisors or you can complete an enquiry form which will allow you to schedule a call time.
There are lenders that provide mortgages to buy a flat above a shop. The availability of lenders will depend upon many factors such as what the flat will be used for i.e. to live in or rent out, what type of shop is below, how long is the leasehold on the flat. Speaking to an experienced adviser in this area is important to get the right advice.
This is typically where you buy the freehold of the property (i.e. the building) and within this is a shop and a flat above, so it is part commercial and part residential. There are lenders that provide semi commercial mortgages, however not all high street lenders will do so – therfore it is worth speaking with a broker to understand what lenders can help from the high street and in the more specialist lending market.