Mortgages for flats above shops

People always wonder if the can get a mortgage for a flat above a shop and if there are any barriers to doing so. You may have spotted a flat above a shop which you thought was of very good value and wondered why it was so much cheaper than other surrounding properties.

In this brief guide, we will cover getting a mortgage for a flat above a shop and what factors you may want to consider.

Can you get a mortgage on a flat above a shop?

Yes, you can get a mortgage on a flat above a shop but this may be more difficult to get as the flat could be classed as a commercial property and you may not find too many mortgage lenders willing to lend to you. You may want to use a specialist mortgage broker.

There may be a few mortgage lenders who offer a residential mortgage on a flat above a shop and likely more buy to let mortgage lenders.

When getting a flat above a shop mortgage you may also want to look into the leasehold costs as due to the commercial nature of some of the property you may find that you are paying a higher than usual ground rent or other leasehold costs.

Why is it harder to get a mortgage for a flat above a shop?

The main reason why it may be much harder to get a mortgage for a flat above a shop is that many mortgage lenders may be worried about the resale value of the property. The fact that you are happy to buy it doesn’t mean there will be a lot of buyers in the market when you come to sell it.

For the mortgage lender, they are looking at it from the viewpoint of having to do a potential home repossession and not being able to get back what they borrowed you as they have to sell the flat above the shop for a cheaper price.

Most mortgage lenders will also consider flats above shops as riskier because the resale value is affected by the potential noise, smells, risk of fire etc caused by having commercial buildings right below.

Mortgage lenders are very right to have this concern as data shows that flats above shops tend to lose value faster than the average property under certain market conditions and you may find that mortgage lenders who will lend to you on a flat above a shop will usually offer you a loan to value rate of 75% or less which means you will have to put down a bigger mortgage deposit than you may have to wit other mortgage products.

Insurance for flats above shops

Getting home insurance for a flat above a shop may also be much harder as most insurance providers may have very high premiums to provide you cover.

You may still be able to find an insurance provider who is able to offer you competitive quotes for insurance on a flat above a shop but you may have to use a specialist insurance broker.

Getting a buy to let mortgage for a flat above a shop may certainly be easier than trying to get a residential mortgage for the same flat.

You will still be required to put a larger mortgage deposit down and will still be scrutinized by the mortgage lender due to the fact that the property is a flat above a shop or commercial premises and still has the same risks as mentioned above.

If you can show that the buy to let property will be able to provide enough income to cover the monthly mortgage repayments then you could find it a bit easier to get a flat above shop buy to let mortgage.

How much deposit do you need for a mortgage on a flat above a commercial premise?

Due to the increased risks mortgage lenders perceive from flats above shops or commercial premises you can expect to put down a large mortgage deposit as the mortgage lender will look to limit their exposure and risk in case anything goes wrong.

The loan to value rates on offer from the mortgage lender will, therefore, be much lower than other similar mortgage products and reflect their risk exposure.

The mortgage deposit you may be required to put down may even be higher than what a mortgage lender will require for a flat above a shop if the commercial building below is a pub, restaurant, bar or any commercial premises which may need to be opened late at night.

The mortgage deposit you may be required to put down as below:

Flat above shop mortgage: generally a loan to value of 85% or less and a mortgage deposit of 15% or more

Flat above restaurant mortgage: generally a loan to value of 75% or less and a mortgage deposit of 25% or more

Flat above takeaway mortgage: generally a loan to value of 60% or less and a mortgage deposit of 40% or more

Can I get a mortgage for a flat over a supermarket?

Yes, you may be able to get a mortgage for a flat above a supermarket as long as you are able to meet the mortgage lenders mortgage affordability requirements.

Can you get a mortgage for a flat above a restaurant?

Yes, you may be able to get a mortgage for a flat above a restaurant as long as you are able to meet the mortgage lenders affordability requirements

You may find that there are limited mortgage options and the mortgage rates aren’t as competitive when getting a mortgage for a flat above a restaurant.

Can you get a mortgage for a shop and a flat?

Yes, you may be able to get one single mortgage for a flat and shop if the shop is beneath the flat you want to buy. This could be a mixed-use or semi-commercial loan or mortgage. You should speak to a specialist mortgage broker who may be able to provide you advice on getting a mortgage for a shop and flat.

What mortgage multiples can you get for a flat above shop mortgage?

Different mortgage lenders will all have their different mortgage multiples but on average you can expect to see mortgage multiples at around four but you may have some mortgage lenders who are willing to go as high as six but this may be based on your individual circumstances such as the mortgage deposit you put down and the size of your annual income.

Some mortgage lenders may also accept supplementary income such as benefits.

In this case, the mortgage lender may not necessarily accept all of the supplementary income when figuring out your eligibility for a flat above shop mortgage but may simply accept a certain percentile of a type of supplementary income.

If your income is made up of mostly supplementary income then you may want to find a mortgage lender who accepts most of this so you can get a flat above shop mortgage.

Supplementary income includes:

Pension income

Investment Income

Overseas earned income

Maintenance Payments

Rental Income

Bursary

Stipend

What are the eligibility requirements for a flat above shop mortgage?

Different mortgage lenders all have their different eligibility criteria and so there isn’t one single answer to this question. You should speak to a mortgage broker who may be able to give you guidance on what mortgage lenders may be willing to provide a flat above shop mortgage for your particular circumstances.

Other factors which may affect the eligibility for a flat above a shop mortgage could be the business category and even the layout of the commercial premises.

E.g is there too much foot traffic past the entrance of your flat or going through your flat entrance?

The business category is also a big factor. Businesses which require permits to operate late at night are usually not in demand by mortgage lenders. This could be pubs, restaurants etc

There aren’t that many mortgage lenders who offer mortgages for flats above shops or commercial property but the mortgage lenders which exists will all have different eligibility requirements. You should speak to a mortgage broker who may be able to help you find a property.

Can you get a flat above mortgage if you are self-employed?

You may be able to get a flat above mortgage even if you are self-employed but this will depend mostly on your individual circumstances.

Mortgage lenders will want to see a stable and reliable income to determine your mortgage affordability.

Mortgage lenders will also not like to see any long gaps in unemployment and if you have some you may want to explain this to the mortgage lender in writing before they ask you or reject you for a shop above flat mortgage

As a self-employed borrower you may be expected to provide the following documents:

Your SA302 tax form calculation

Your P60 tax return

Your CV

Your bank statement for at least 3 months

Your annual accounts if you are self-employed through a limited company

Work contracts if you are a contractor or work with contracts.

Can you get a flat above a shop with bad credit?

Different mortgage lenders may be willing to offer you a flat above shop mortgage even if you have bad credit but this will mostly be based on your individual circumstances as most mortgage lenders have different mortgage affordability criteria when dealing with borrowers who have bad credit.

When considering flat above shop mortgage, bad credit could include:

A CCJ

An IVA

A debt management plan

A default

A bankruptcy

A home reposession

You may want to consider speaking to a bad credit mortgage broker who may be able to help you get a flat above shop mortgage with bad credit.

Due to the fact that there are already few mortgage lenders who offer flat above shop mortgages or flat above commercial mortgages you may find it hard to get a flat above mortgage or one at a competitive rate if you have bad credit.

Can you get a flat above mortgage with a government scheme?

Government home buying and home moving schemes could increase the size of your mortgage deposit or reduce the total property cost for you.

Government schemes for home buying and home movers]() do not have restrictions on what type of properties you can buy except on their price and that they must be residential and in some cases, new build properties.

You may be able to use a government scheme to get a flat above mortgage if the flat is classed as a residential property by the government scheme provider.

You should check if this is the case with the government scheme which you intend to use.

Some of the government schemes you may be able to use include:

  • Lifetime ISA– gives you a government bonus of £1,000 if you save the maximum £4,000 a year.
  • Help to buy ISA– gives a maximum bonus us £3,000 if you save the maximum allowed of £12,000. Before you get either you should consider which is better. Lifetime ISA vs Help to buy ISA.
  • Help to buy equity loan- gives you up to 40% as a 5-year interest-free equity loan. You begin to pay interest at 1.75 % after the fifth year and 1% plus RPI for every year thereafter.
  • Shared ownership- You can buy between 25% to 75% of the property initially with a shared ownership mortgage and then buy more using a staircasing mortgage.
  • Armed forces help to buy- similar to the help to buy equity loan but specific for the armed forces personnel giving them an increased chance of acceptance.
  • Rent to buy- This is the right to buy scheme on which this guide is currently discussing. A different marketing name is just used. Watch out for this when shopping to avoid missing out on eligible properties due to confusion.
  • Right to buy- allows you to buy your home at a discount price.
  • Preserved right to buy- same as above.
  • Right to acquire- same as above.

Depending on where you live, you may also be able to take advantage of home buying schemes provided by your local council. Example: In Norwich, the local councils provide the Norwich home options scheme.

You may be able to get a government scheme but this doesn’t mean the mortgage lender will be willing to give you a flat above mortgage but it may improve your chances as you could have an increased mortgage deposit etc.

Can I get a flat above a shop if you are an older borrower?

Most mortgage lenders like to see that the mortgage terms end before or when the borrower turns 75. You may find it hard to get a mortgage if you are approaching 75 although there are some mortgage lenders who will lend to you even if you are above 75 you may need a specialist mortgage broker to assist you with this.

You may find few flat above mortgage lenders who are willing to lend to older borrowers but you may be able to get a flat above mortgage if you can prove you have sufficient income to continue to afford the mortgage or you could simply see if the mortgage lender may be willing to offer you a retirement interest-only mortgage.

What do mortgage lenders classify as commercial property?

Commercial premises is really any place or property where commercial activities are carried out. This can be anything, from a roller skate rink to a takeaway.

The different categories of commercial property are assigned by the council and each building can only do what it has been assigned to do.

The categories of commercial properties include:

Category A1: these are stores, newsagents etc

Category A2: These are professional services such as accountants, banks etc

Category A3: These are coffee houses, restaurants etc

Category A4: These are mainly Pubs, bars and other drinking establishments

Category A5:Hot food takeaway outlets

Most mortgage lenders will base their lending on what category the commercial property below your flat falls into.

John Bate

John has 22 years of experience in financial services. This spans across financial research, financial services (As a qualified mortgage broker and underwriter), financial trading and sales at global investment banks. While working as a publishing research analyst, he covered European bank credit and advised institutional clients on investment strategies at both JP Morgan and Societe Generale. John has passed all three levels of the CFA (Chartered Financial Analyst) programme.