Getting A Mortgage on A Flat Above a Shop

By Kristian Derrick

Last Reviewed: 28th June 2024

A flat above a commercial premises like a shop can be an attractive location with certain benefits.

It can give you great value for money since they’re usually available at lower prices than other flats in the area.

They appeal to renters who like central locations near amenities and can be a good option for landlords.

Here’s everything you need to know about getting a mortgage on a flat above a shop, how to submit a robust application, and how to ensure you get a good offer.

Can You Get a Mortgage on A Flat Above a Shop?

Yes. Many lenders, although not all, will approve your application for a mortgage on a flat above a shop. Various specialist and mainstream lenders will consider this type of home loan.

However, you’ll have a limited pool of potential lenders since most will be concerned about the property’s saleability in the event of repossession.

Lenders ideally want properties that can sell quickly and easily to recover their investment if you default, which can be hard to do if the property is less desirable.

Factors that can make flats above commercial premises harder to sell include

  • High risks of loud noises
  • Smells
  • Unsocial operation hours
  • Drunken behaviour in case of takeaway shops or drinking establishments
  • Increased risk of fire from commercial properties like restaurants

Some lenders reject applications for such properties because they fear the property will lose value.

Most flats above shops also feature leaseholds. The lender would need to invest additional time and money examining the lease terms to pre-empt possible changes, so they simply choose not to lend on such properties.

How Much Can You Borrow with A Mortgage on A Flat Above a Shop?

The amount you can borrow will depend on your income and expenditure. Since the property is above commercial premises, it can also indirectly impact how much lenders are willing to offer.

Lenders usually offer up to 4.5 times your income for residential mortgages, with some offering as much as six times your income.

However, you may be limited on the income multiples you can access for a flat above a shop since there will be fewer lenders for such properties than a standard residential mortgage.

Different lenders have their way of calculating income and affordability to determine how much you can borrow.

Some will consider any supplementary income you have, while others will only consider your regular income or self-employment accounts.

What Are the Eligibility Factors for Getting a Mortgage on a Flat Above a Shop?

Each lender can have different eligibility criteria, but most usually consider factors like:

  • Your employment status
  • Your credit status – Lenders can view you as a riskier borrower if you have bad credit, limiting those willing to lend to you.
  • Your deposit level

Most lenders will require a deposit of at least 15% for a flat above a shop due to the resale value concerns.

The deposit can be higher for other commercial premises like cafes, offices, bars, and restaurants.

Lenders will also look at other factors, including:

  • Access and security of the flat
  • The location of the flat. Some locations are more desirable than others.
  • Whether there is at least one floor between the flat and the shop or if it’s directly above it.
  • The types of shops adjacent to the one underneath the flat.
  • Whether the shop and the flat have separate title deeds.
  • Whether the property is self-contained.
  • The length of the lease.
  • The operating hours of the shop.

Can You Get a Mortgage for the Flat and Shop?

Yes. If you’re looking to purchase both the flat and shop below it, there are a couple of options you can consider.

These include:

  • Semi-commercial Mortgage – Also called mixed-use or hybrid mortgages, semi-commercial mortgages can help purchase or refinance any building or land used for residential and commercial purposes. Applications for such mortgages are assessed on their own merits and the operating profit the property will generate.
  • Taking out two mortgages – If you plan to let out the shop and live in the flat upstairs, you may want to consider getting two separate mortgages. You can get a residential mortgage for the flat and a commercial mortgage for the shop. It can be a complex process involving splitting the title deeds and affordability calculations. You’ll want to consult an experienced mortgage advisor or broker to help manage the applications and offer guidance on your options.

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Can You Get a Second Home Mortgage for A Flat Above a Shop?

Yes. Getting a second home mortgage for a flat above a shop should be similar to any other residential second home mortgage.

However, lenders consider second homes as a higher risk.

They may require you to put down a higher deposit or interest rate if you’re still paying a mortgage on your primary home.

This is because people are more likely to default on the mortgage for their second home if they face financial difficulties.

Can You Get a Buy-to-Let Mortgage for a Flat Above a Shop?

Yes. A buy-to-let mortgage will be necessary if you want to mortgage a flat above a shop as a rental opportunity.

Most buy-to-let mortgages are interest-only.

This means you pay the interest on the loan monthly and pay off the original loan amount at the end of the term.

Lenders will determine your affordability for the buy-to-let mortgage by looking at the projected rental income of the property.

The lender will require an estimation of the rental income to determine whether you can afford monthly payments.

Most lenders require the rental income to be between 125% and 145% of the monthly interest payments.

They also examine your non-rental income and conduct stress tests to determine if you can cover any fluctuations.

Final Thoughts

A mortgage on a flat above a shop is similar to a standard residential mortgage.

However, it can be more challenging, depending on your circumstances. Working with an experienced mortgage broker can increase your chances of finding the best deal possible from a suitable lender.

Call us today on 01925 906 210 or contact us to speak to one of our friendly advisors.

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