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Getting a mortgage on a flat above a shop

How to get a mortgage for a flat above commercial premises.

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By Pete Mugleston  | Mortgage Advisor Pete has been a mortgage advisor for over 10 years, and is regularly cited in both trade and national press.

Updated: 11th July 2019 *

We often hear from customers wanting to take out a mortgage on a flat above a shop. Getting a mortgage for a flat above a shop or indeed any commercial premises can be a complicated process, and if you’re in this situation you may have found it hard to find a lender that will accept your application.

Fortunately, there are lenders that are willing to offer mortgages on flats above shops in the right circumstances, and by speaking to one of the advisors we work with who have access to the whole market, it should not take long to find a deal that works for you.

This article covers the most common issues related to mortgages for flats over shops, including:

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

It is absolutely possible to take out mortgages on flats above commercial premises, either on a residential or buy-to-let (BTL) basis. However, it certainly more difficult to find a willing lender, because of the additional risk and complexity posed by this type of property.  

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

Lenders consider flats above shops and other commercial premises to be a riskier prospect than other types of residential property for several reasons. Perhaps the most important is that commercial businesses have the potential to cause a nuisance such as noise, smells or being open at unsociable hours, all of which could affect their resale value.

Statistically, these properties tend to lose value faster under certain market conditions, so lenders will be keen to protect their investment, for example by asking for larger deposits, or in some cases by refusing to touch them at all.

What else could impact the mortgage provider’s lending decision?

The business category and even the layout of the commercial premises will also affect lenders’ willingness to make an offer, since these can all affect the fabric of the property as well as its desirability: for example if the flat shares an entrance such as a staircase with the businesses area it may be heavily used and/or poorly maintained.

Business categories A3-A5, which include dining establishments, takeaways and licensed premises, are by far the biggest turn-off for lenders, since these can attract the most antisocial elements of noise, smells, alcohol-related issues, late hours and even fire risk, all of which can affect resale. This is why getting a flat above a restaurant or bar can be especially difficult.

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

If you’ve found your dream home above one of these troublesome business categories, what can be done?

Fortunately, some lenders that specialise in lending on flats above restaurants, drinking establishments and takeaway outlets and a handful of high street lenders will consider doing so on a case-by-case basis, so you can even get a mortgage for flat above a chip shop if the circumstances are right!

Since most providers are cautious about lending on these types of property, the market is still relatively small and you will therefore have a more limited range of options in terms of the providers and deals available, and rates are likely to be higher than average. Speak to an expert broker for the best advice.

How much deposit will I need for a mortgage on a flat above a commercial premise?

Lenders tend to require higher deposits for flats above shops than for more ‘standard’ residences, and will often want an even higher deposit for flats above restaurants, pubs and bars, with those situated above takeaways often requiring the largest deposits due to the hours these businesses tend to keep.

A typical Loan to Value (LTV) ratio for a flat above a shop is up to 85% compared with 90% or even 100% mortgages. See the chart below for how the amount you can borrow is likely to decrease further for flats above more ‘risky’ commercial premises:

Product type Typical LTV Deposit required
Flat above shop mortgage <85% 15% or more
Flat above restaurant mortgage <75% 25% or more
Flat above takeaway outlet <60% 40% or more

Am I eligible for a mortgage on a flat above a shop?

As in any mortgage application, you will need to convince the lender that you can afford the repayments, and that your overall risk profile as a borrower is compatible with their policies.

These are the main issues to bear in mind when applying for mortgages for flats above commercial property:

What size mortgage can I afford to get on a flat above a shop?

Lenders set their own caps on income multiples, but most will lend 4 x your income with a few going up to 5 and occasionally 6 x this figure.

They also have different policies on what income types are accepted (e.g. salary, fixed-term contracts, self employed, benefits etc) and on how long you’ll need to have been in your current job.

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

Lenders take different views on what they will accept in terms of adverse credit, and while some are very strict and insist on clean credit records for all borrowers, others will accept applicants even with severe issues such as bankruptcy.

If you have a lot of credit issues you may find it harder to get a mortgage for a flat above a shop since the pool of appropriate lenders is already limited, but it’s worth speaking to one of the advisors we work with.

They are experts when it comes to helping people with bad credit find a mortgage, and will be able to assess the likelihood of you being approved. For more information on this see our bad credit information section here.

Can I get a flat above a shop in retirement or later life?

Most lenders that will mortgage flats above shops do not lend to retired borrowers on a standard residential mortgage basis, however one or two will consider doing so with proof of sufficient pension income, and a couple offer Retirement Interest Only (RIO) mortgages so this could be an option if you’re buying this type of property in later life: speak to an expert to ensure you get access to the best deals.

Can I take out a Buy to Let mortgage on a flat above a shop?

Often found in central locations, flats of this type are popular with renters and it’s certainly possible to get a BTL mortgage for a flat above a shop, restaurant or other commercial property if you meet lender criteria.

These products are offered by several high street and specialist lenders, and are subject to the same caveats as any other BTL mortgage, meaning they tend to come with higher interest rates and will require larger deposits - factors that are likely to be compounded by the stricter criteria for this type of property.

Most BTL providers will base their lending decision on the viability of the investment, i.e. whether the forecast rental income is sufficient to cover the mortgage payments.

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

Yes, as long as you meet the lender’s eligibility requirements. The specialist providers who offer mortgages for flats above shops are unlikely to treat your application any differently if the store the property sits above happens to be a supermarket.

Getting a mortgage for a shop and flat

If the commercial premises sitting beneath the flat you want to buy is your own business, can you take out a single mortgage for both the shop and self contained flat?

The answer will depend on numerous factors however it may be possible to mortgage both properties under a ‘mixed use’ or semi-commercial loan. Speak to an expert to find out if this solution makes good sense in your circumstances.

You can read more about semi-commercial mortgages.

Mortgage lenders for flats above shops

While it’s considered a relatively small market, there is a healthy number of well-known and more niche lenders offering mortgage products for those looking to buy flats above commercial premises, either to live in or to rent out - so you should be able to find one willing to make you an offer in most circumstances.

Don’t forget lenders have their own policies on what is acceptable for flats above shops, so some will accept a flat directly above commercial premises, while others only if there is another storey with another flat underneath the one you intend to buy. Some lenders consider the desirability of the neighbourhood to be of prime importance, while others do not factor this in.

The best way to find your ideal lender is to speak to a specialist advisor with access to the entire market.

What do lenders count as commercial premises?

Commercial premises can refer to any property where commercial business is carried out, with access to the general public. This covers not only shops but restaurants, bars, supermarkets, take-away outlets, pubs, banks and more.

Each type of commercial premises falls into a different category, which council planning departments use to designate agreed usage of the property. These are:

  • Category A1:
    Includes general stores such as food shops and newsagents
  • Category A2:
    Covers professional services like banks and estate agents
  • Category A3:
    Restaurants, cafes, food and drink establishments
  • Category A4:
    Pubs, bars and other drinking establishments
  • Category A5:
    Hot food takeaway outlets

Lenders need to know which category the business falls into to inform their decision on whether or not to lend, as well as the deals and rates they may offer.

Speak to an expert on mortgages for flats over commercial premises today!

If you have questions about mortgages for flats above shops and want to speak to an expert for the right advice, call Online Mortgage Advisor today on 0808 189 2301 or make an enquiry here.

Then sit back and let us do all the hard work in finding the broker with the right expertise for your circumstances.  – We don’t charge a fee and there’s absolutely no obligation or marks on your credit rating.

Updated: 11th July 2019
OnlineMortgageAdvisor 2019 ©

FCA disclaimer

*Based on our research, the content contained in this article is accurate as of most recent time of writing. Lender criteria and policies change regularly so speak to one of the advisors we work with to confirm the most accurate up to date information. The info on the site is not tailored advice to each individual reader, and as such does not constitute financial advice. All advisors working with us are fully qualified to provide mortgage advice and work only for firms who are authorised and regulated by the Financial Conduct Authority. They will offer any advice specific to you and your needs. Some types of buy to let mortgages are not regulated by the FCA. Think carefully before securing other debts against your home. As a mortgage is secured against your home, it may be repossessed if you do not keep up with repayments on your mortgage. Equity released from your home will also be secured against it.