Should I Get A Mortgage on A Flat Above A Shop?

Some people really like living right in middle of the city centre. Being close to all the amenities, shops and transport networks is essential for their life. At the same time, many streets that are filled with shops also have space above them that have been turned into flats.

Getting a mortgage for a flat that is above a shop can be difficult – but it can be done! We’ll give you all the key info below that you need to consider when buying a flat above a shop.

Usually, it is very hard to find lenders that will accept your mortgage application and work with you. However, there are some lenders that are willing to loan you money for a flat above a shop as long as you meet the requirements.

Why You Should Buy A Flat Above a Shop

A shop above a flat isn’t always the most type of location in the UK. Most people have the vision of living in a big, detached house in a clean, quiet, leafy suburb with fast access to any shop on their doorstep. Unfortunately this doesn’t always exist – and you’ll find that you need to compromise on certain things.

Here are some reasons why living above a shop can be a great idea:

Proximity to Goods and Services:

Having direct access to all of the places you visit frequently can save you a lot of time in commuting. Being able to take off 10 minutes on your journey to the supermarket, the pub, the gym and the station can easily save you an hour over the course of the day. And don’t forget about the infrequent trips to the hair dressers, dentist and doctor too!

Budget-friendly:

One of the big benefits of living above a shop is the lower price point of these flats. If this is the best location for you then living above a shop can save you a lot of money. Your might be able to buy the flat with a smaller upfront deposit than other properties.

Always Some Noise:

You might be wondering – ‘why is this listed as a positive’? Surely everyone wants a place to live that’s completely quiet?
Actually there a lot of people who take comfort in having some activity going on around them near the place that they live.
Some people perceive complete quietness in their home as a reason to be anxious, as they feel alone and their negative thoughts can get the better of them. This is especially true for people who live on their own for long periods of time.
For some, the ability to open their window or go outside and see ‘things happening’ can be very reassuring. Whether it’s the people rushing to work, the shoppers browsing the stores or the group of friends celebrating a birthday.

Drawbacks to Buying Above a Shop

Despite the benefits listed above, there are inevitably going to be drawbacks for some people too.

Too Much Noise

Remember when we said above that people like being around activity? Well there’s a big difference between hearing people walking around by the shops and having to listen to extremely loud building work. You should research the area and try and visit the location at different times of the day.

You especially want to view the area when people are commuting for work as this is when it is likely to be the loudest (8am-9am or 5pm-6pm).

Along with the noise of outside, you may find that you can hear noise from below your property as there is a shop trading underneath you. Again, viewing these places during certain times will help a lot for your decision making.

It’s worth bearing in mind the likely times that certain businesses will be busy and noisy below you:

• Restaurants – evening times and especially weekends
• Homeware shops (furniture, DIY, plumbing) – weekends
• Hairdressers – potentially busy most days but especially weekends
• Pubs & nightclubs – busy after 7pm until late
• Grocery stores & newsagents – most of time

Less Space

Because flats above shops are normally limited to the size of the shop below, they can sometimes be smaller than other properties. This is normally reflected in the lower price, but it is something to bear in mind when you are looking.

Insurance Costs

It’s no surprise that if lenders get more worried about giving a mortgage for a flat above a shop, an insurer will also be worried about providing cover.

Again, there are usually some insurers who will provide cover for the property (everyone has their price) but you should expect the cost to be a little more.

It can really pay to use price comparison websites for home insurance to get the best possible deal.

Why Lenders Are Less Likely To Approve a Loan For A Flat Above a Shop

Lenders find it harder to approve a loan for a flat above a shop because of the risks involved.

The reasons why lenders can sometimes refuse a mortgage over a shop are similar to the reasons why you might not want to buy one. It all comes down to resale value – i.e. can a lender sell the property to someone else for the same value to recoup the funds that they provided to you in a mortgage if you don’t pay them back.

Below are some reasons why it is difficult to get a mortgage approval for a flat above a shop:

Commercial business can be a nuisance

Depending on what business a shop is involved in, they tend to cause noise, odors, and are open very late at night. This can impact their resale value and can cost lenders more money.

Fire risks

Commercial businesses such as hair and nail salons as well as bars can increase the risk of a fire happening in the wider building. The risk is lower with buildings that do not have these types of businesses in them.

Building Plan

The structure and plan of the building can also make it less desirable. For instance, if a flat shares a staircase with the business underneath, there’s a chance that it doesn’t get maintained as well. This can affect the property’s desirability and its future resale price.

Certain Types of Businesses

Key types of businesses that concern lenders include the following categories:

●          Category A3: Cafes, Restaurants, and all food establishments

●          Category A4: Drink establishments such as pubs and bars

●          Category A5: Food takeaway services

This is not an extensive list. Some lenders will have many more categories that they will simply not lend a mortgage on. Other lenders are more relaxed about them. This is where it is worth speaking to a good qualified mortgage broker so that you can receive specific advice about your situation.

What Will A Lender Look For In My Application?

So it’s clear that certain lenders are willing to provide a mortgage for your flat above a shop. Now you need to consider what other factors can influence their decision on your mortgage application.

The good news is that a lot of requirements for a mortgage above a flat are the same as the requirements for a mortgage on a ‘more regular’ property.

Below are a few of them to consider:

The Size of Mortgage You Can Afford

Lenders have different ways to decide if you can afford a mortgage or not. They will each have different income multiples that are their maximum limits (although they will also assess all of your expenses to understand what you can actually afford). There’s more on this in our mortgage guide.

You should speak to some lenders to understand what kind of mortgage they will give you – and what size of deposit they require (most mortgages require some size of deposit even if you have a high salary).

Credit Score

Being able to pay back your loan is a crucial part of getting an approval for a loan for a flat above a shop. Your credit score plays a vital role in convincing lenders that you can repay your loan. Whilst many lenders might require you to have a clean credit history, there are some who lend to people with a lower credit score (although you should expect to pay more interest).

Again, a good mortgage broker can help you if you think your credit history might be an issue.

Deposit Requirements

Another important factor you need to think about for a flat above a shop is the amount you need to deposit. The deposits for a mortgage usually differ based on the type of flat and location. For flats above a shop, lenders might see this as high risk. They might want you to bring down some of this risk by putting in a larger deposit (so they end up lending less money on the property). Higher deposit requirements may be higher for flats above bars, restaurants, and takeaway services – although every lender has their own individual policy.

Summary

Ultimately, getting a mortgage for a flat above a shop isn’t an easy process. Lenders are more likely to approve loans for buildings with low risks involved. A flat above a shop can have more risks attached to it: noise, smells, fire risks.

But if you do get a good vibe about a property and understand these risks, living above a shop could be a dream purchase for someone. Many people already live above them, so it shows that it’s possible!