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Mortgage Next to a Commercial Property

Everything you need to know about securing a mortgage next to a commercial property.

No impact on credit score

Pete Mugleston

Author: Pete Mugleston - Mortgage Advisor, MD

Updated: August 26, 2021

We get lots of enquiries from people who want a mortgage for a flat above commercial premises. Often they have found buying a flat above a shop or restaurant difficult because some lenders don’t offer mortgages for these properties. The good news is that there are options available.

We have gathered all of the key information you need to know about how to get a mortgage for a flat above a commercial property :

For the right advice on getting a mortgage for a flat above a chip shop or any other commercial property, speak to an expert. The advisors we work with are experts and can find lenders who are more likely to approve you.

Can you get a mortgage for a flat above shop?

Yes – there are specialist lenders willing to offer this, but first let’s outline the benefits and potential pitfalls of buying a property under these circumstances…

Pros for getting a mortgage for flat above a shop

  • If you plan to let the flat above a shop, city centre locations can potentially attract high rental income.
  • Could potentially buy a property at great value as these properties are typically less expensive compared to properties that are not above or next to commercial sites
  • Depending on the type of commercial property, there could be no noisy neighbours after hours/weekends
  • The neighbours could be the business owners. Professionals who have an invested interest in staying long term may be more likely to be good neighbours i.e. be quiet, respectful
  • Having a property above a shop could mean that you are close to other local amenities such as shops, restaurants or local transport

Cons for getting a mortgage for flat above a shop or restaurant

  • If the property is situated above a restaurant, there could be unpleasant smells and noise
  • The business below the property could receive deliveries at early hours of the morning
  • Often such properties can have less pleasing aesthetics including litter, bins or advertisement signs
  • These properties can be more difficult to sell on and are more likely to drop in value in a declining market

Is it difficult to get a mortgage for a flat above a shop?

Most lenders are unwilling to approve a mortgage for properties above a commercial property because often they can be impacted by smell, which makes flats over takeaways harder to finance. Some lenders will consider mortgages for a flat above a commercial property , depending on how many floors above they are, and the area in general.

Some lenders may be more likely to approve a mortgage next to a commercial property in central areas such as London where these properties are in high demand, compared to areas where the property is in a small town with less demand.

What will lenders look at when assessing my application for a flat next to a commercial property?

When applying for a mortgage it can be helpful to know the things that can affect your eligibility.

These things can include:

  • Income
  • Employment
  • Age
  • Credit history
  • Type of property you’re buying
  • The type of commercial property it’s above/next to

The type of commercial property it’s above/next to can also affect the mortgage application.
Commercial property is categorised into the following classes.

  • Class A1 – shops and retail outlets.
  • Class A2 – professional services.
  • Class A3 – food and drink.
  • Class A4 – drinking establishments.
  • Class A5 – hot food and takeaway

Generally, the further down the list the property is classed then the more difficult it is to obtain a mortgage on an adjacent flat.

For more information on how each of these factors can affect your mortgage application, it’s best to talk to an advisor. Contact us here and we’ll put you in touch with an expert who has specific experience with your query.

How much deposit is needed on house next to a commercial property?

The amount of deposit required for a property can vary depending on many factors including the property price, the lender, your affordability and your credit score.

Most lenders request a maximum Loan to Value (LTV) of 90 – 95%, meaning that they will lend 90 – 95% of the property value if you can pay a 5-10% deposit. For example, if the property was £100,000 and a lender was able to provide a mortgage with an LTV of 90%, you would need £10,000.

Will I need a bigger deposit if my finances are more complex?

If you have a more complex financial situation, for example if you are looking for a self-employed mortgage, or you’re wanting to apply for a mortgage with bonuses or commission factored in, or have adverse credit, a lender who specialises in mortgages for that particular niche may be more likely to approve your application. Some lenders like this may ask for a higher deposit of around 15 – 25%, depending on your circumstances.

Therefore, potentially you could potentially be asked for a larger deposit but this really does depend on the lender as well as many other factors.

For example, if you have bad credit, the type of credit and date of the occurrence can affect how a lender assesses your likelihood to be able to make your mortgage payments. To make your payments more manageable and therefore easier to keep up with they could ask for a higher deposit which would make the overall loan smaller.

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Getting a mortgage with bad credit on property next to commercial property

Below is a list of potential credit issues you may be faced with as a borrower, where it may be possible to still obtain a mortgage.

  • Low credit score
  • Late payments
  • Mortgage arrears
  • Defaults
  • CCJs
  • Debt management plans
  • IVA
  • Bankruptcy
  • Repossession

Customers with bad credit can often be seen as a higher risk to lenders, which can make getting a mortgage for a flat or house next to a commercial property even more difficult. Thankfully, the experts we work with have helped lots of customers get mortgages, including CCJ mortgages and Bankruptcy.

For more information on how we can help, read our guide on how to get a mortgage with bad credit.

Buy to let mortgages for flats above shops

We have also helped many homeowners get approved for mortgages on Buy to Let properties above shops. These types of mortgages can be deemed as higher risk to lenders but most Buy to Let lenders will offer a Loan to Value (LTV) of 75%, meaning that you’ll need a 25% deposit. However, some will consider just 20% and a handful will consider a 15% deposit in the right circumstances.

Check whether the shop owner is the freeholder

In some cases, the business owner of a shop or restaurant is also the leaseholder of the property above. This could mean that your right to occupation and use of the flat has a fixed period, usually 99 – 125 years. Once this period has ended, the ownership of the flat reverts back to the leaseholder, also known as the freeholder.

You may also be liable to pay a service charge which can increase over time. This is an important factor to consider if you buy a flat with a freeholder, so always check the terms of contract before you buy the property.

Speak to an expert

If you have questions 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.

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About the author

Pete, an expert in all things mortgages, cut his teeth right in the middle of the credit crunch. With plenty of people needing help and few mortgage providers lending, Pete found great success in going the extra mile to find mortgages for people whom many others considered lost causes. The experience he gained, coupled with his love of helping people reach their goals, led him to establish Online Mortgage Advisor, with one clear vision – to help as many customers as possible get the right advice, regardless of need or background.

Pete’s presence in the industry as the ‘go-to’ for specialist finance continues to grow, and he is regularly cited in and writes for both local and national press, as well as trade publications, with a regular column in Mortgage Introducer and being the exclusive mortgage expert for LOVEMoney. Pete also writes for OMA of course!

Read more about Pete

Pete Mugleston

Mortgage Advisor, MD

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FCA disclaimer

*Based on our research, the content contained in this article is accurate as of the 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 information 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.

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