When you’re looking for a new home, buying a flat above a shop or a house next to a trading business can provide great value for money and can seem the perfect choice for first time buyers.
But, before you get stuck in, you should be aware of the challenges people face when trying to get a mortgage on this type of property.
There are many providers who can help, so the situation is far from impossible.
But it isn’t always plain sailing either.
In fact, both buy to let and residential mortgages can be accepted on these types of properties. The key is finding the right broker or lender to use.
Mortgage availability
Mortgage solutions are available where a property (house or flat), is next to or near a commercial property.
Some risk adverse lenders won’t touch them at all.
While others will accept applications and then make their decision based on the surveyors valuation report and comments.
The overall process is not as simple as buying in an established residential area. The number of lenders to approach will be limited and they may not always offer their best terms.
For these reasons it is really important to work with an experienced mortgage broker.
Firstly, whole of market brokers will have access to over 100 lenders, including the specialists who are interested in these types of deals. This gives you the maximum possible choice.
Secondly, the broker’s experience should enable you to apply to a lender who is amenable to these situations. Saving you the time and cost of reapplying elsewhere should you get rejected.
What is a commercial property?
This is basically any use of land that is not wholly for residential dwellings.
Getting a mortgage for a home near certain types of commercial properties can be trickier due to the potential negative impacts on the residential property’s desirability, value, and the living conditions. Here are some types of commercial properties that might cause concerns:
- Industrial Facilities:
- Factories, warehouses, or other industrial sites might produce noise, odour, or pollution which can be off-putting to both lenders and residents.
- Nightclubs and Bars:
- These venues can generate noise and anti-social behaviour, especially during the night, which may affect the nearby residential properties.
- Petrol Stations:
- Concerns about potential hazards or pollution might arise with petrol stations in close proximity. Also additional noise and traffic.
- Waste Management Facilities:
- Nearby rubbish dumps or recycling centres will generally cause odour issues and would be seen as undesirable neighbours.
- High Traffic Retail Outlets:
- Large shopping centres or supermarkets may generate high levels of traffic and noise.
- Transport Hubs:
- Being near to busy train stations, bus depots, or airports can lead to noise pollution and heavy traffic.
- Takeaways and Fast Food Outlets:
- They might attract loitering, litter, and additional traffic, especially during late hours.
Each lender will have their own criteria and will view the proximity of certain types of commercial property differently.
A home doesn’t need to be directly next to a commercial business to be affected; the extent of impact depends on factors like the operation level of the commercial property, local reputation, and even prevailing wind direction.
Why is it more difficult?
From a lender’s perspective, homes that are near businesses pose a higher risk to them.
Excessive noise and inconvenience can cause a property to lose value and become harder to sell in the future. Neither of these are good for a lender (or the owner).
Lenders need to be able to see that they can sell the property easily, should it ever need to be repossessed.
The type of business nearby will be taken in to consideration. So having an estate agent next door, or a friendly mortgage broker (😉), is unlikely to cause too many issues to the residents. But being next to a pub or late night takeaway will not be so peaceful.
Having shops or businesses in close proximity doesn’t always lead to a rejection.
It depends on a lenders criteria, their appetite for a new deal and the overall position of the property and local amenities.
Eligibility criteria
If you choose to buy a house near a business then you will have fewer lenders to choose from.
To get the best outcome it is vital that you are able to meet the other eligibility criteria.
The main criteria are:
DEPOSIT – The larger the deposit you can save, the better options you have. Some lenders will decrease their maximum LTV, meaning you need to come up with the balance in the form of a larger deposit. Budget for around 20%.
AFFORDABILITY – As well as your regular income, any lender will want to check that you can afford the new mortgage repayments. This involves analysing what you spend your money on, and how.
CREDIT STATUS – Having a good credit history will increase your chances of a successful application. Options are available even if you have some bad credit.
AGE – If you are getting a mortgage later in life then you need to be aware of a lenders maximum age criteria. Some lenders are more flexible than others, and it’s even possible to find a mortgage if you are a pensioner.
PROPERTY – The lending decision will be led by the property itself and the valuers comments. If it’s not acceptable to the lender then nothing can really overcome that.
WhAT THE lenders SAY ABOUT this style of property
Unacceptable Properties
Single brick (single skin) construction
Other unacceptable properties
Properties situated above restaurants, takeaways or public houses
We do not usually lend on properties that are next to, opposite, above or close to commercial premises or anything that may prohibit the peaceful enjoyment of the property.
For example: shops, garages, petrol stations, restaurants, takeaways, factories, industrial units, farms, overhead power lines, sub stations, pylons, mobile phone masts, noise nuisance, smell, etc. This isn’t an exhaustive list.
However, if the property is in a highly desirable area we may be able to consider it.
Commercial Property – near or adjacent to
Accepted – subject to surveyor’s comments that the property and location does not adversely affect saleability.
Properties above, adjacent or near to commercial premises
These can be considered subject to valuer’s comments.
Properties which are above, adjacent or near to commercial premises may be acceptable subject to the following:
- flats over commercial premises must be in separate ownership to the commercial premises
- the proximity of the commercial use must not affect the quiet enjoyment of the property
- consideration should be given to the location of the property
The property must be located in a desirable area with good demand, readily saleable and readily marketable, for example properties which are adjacent to, or in very close proximity to a public house, night club, petrol station, laundrette, pet shop or hot food takeaway where the method of cooking is likely to cause smell or fumes would not be deemed as suitable security.
Properties located above convenience stores / small supermarkets are acceptable.
Any residential security must have a suitable access, which must not be through a business premises.
Where the intended security is a flat situated adjoining or over the premises, the business property cannot be owned by the same person as this would have legal implications in the event of repossession.
Unacceptable Properties
Properties directly above or adjacent to premises categorised as:
- Food and drink
- Hot food and takeaway
- General industrial use
- Storage or distribution
- Assembly and leisure
Properties close to commercial outlets
Our ability to lend may be restricted for properties that are in close proximity or influential distance of commercial outlets. We will take advice from our valuers when assessing the property to be mortgaged.
Properties which are above, adjacent or near to commercial premises may be acceptable subject to the following:
The proximity of the commercial use must not affect the quiet enjoyment of the property. Consideration should be given to the location of the property. The property must be located in a desirable area with good demand, readily saleable and readily marketable.
For example, properties which are adjacent to, or in close proximity to a Public House, Cattery, Kennels, restaurant or food outlet, petrol station, laundrette or pet shop would not be deemed as suitable security. This is not an exhaustive list.
Why do people buy these properties?
It’s often because they are cheaper. Properties close to higher risk businesses are generally less desirable and so will cost less than a similar property in a residential road.
This is one reason why flats over shops are popular with first time buyers. While it’s a bit more difficult to find the right mortgage lender, the flat will be cheaper than others nearby.
Some people like to be in the middle of the hustle and bustle of a town or city. For them the noise and limited parking are worthwhile trade offs for being close to nightlife and city amenities.
Properties used as a buy to let can command good levels of rent due to proximity to transport links and employers.
How a mortgage broker can help
Whatever type of mortgage you need, a mortgage broker can add a tremendous amount of value.
Where you are looking to buy near to commercial property then it’s essential to have an experienced broker on your side. Only certain lenders will be interested in the property, and it can be hit and miss trying to locate the ones that do accept them.
A specialist mortgage broker will know which lenders to approach, and just as important, how to approach them. They will save you time and money.
Remember that a whole of market broker has access to over 100 lenders. These are banks, building societies and specialist lenders.
Ready to explore your options?
If you’re on the cusp of starting your mortgage journey and could use the guiding hand of a professional, don’t hesitate to reach out to a reputable mortgage broker.
They will make the process smoother and more profitable than going it alone. And remember, knowledge is power.
The more you know, the better decisions you can make. Keep reading, keep asking questions, and keep moving forward on your journey.
