Q&A; mortgages for flats over shops and houses adjacent to commercial property

Q&A; Mortgages for flats above shops and commercial property

Question; I am buying a flat above a shop or other commercial premises; I understand this can be difficult; what do I need to be aware of?

Lenders always have to be aware of risks that may affect the value of a property and its saleability should the loan go into default.

A flat above a shop or commercial premises has several risks that a lender will consider in making a loan.

These include the nature of the business the flat is above; if it would cause little disturbance to the owners (think florist or estate agent), it is less of a risk.

However, a flat over a fish and chip shop, where late opening hours and food smells may affect the ability of the lender to re-sell, would be challenging to mortgage.

The usual suspects are all varieties of hot food outlets, any kind of bar or off-license, shops with late opening hours or antisocial attributes, and more bizarrely; beauty salons and hairdressers.

Lenders will consider the location of the flat. A flat over commercial premises in an area like Chelsea or Knightsbridge would still command a significant value and appetite for lending.

But the same property in an unfashionable part of a city like Manchester or Liverpool would be far harder to mortgage.

Another issue is access; a mortgaged property must have independent access; if this is too close to the working areas of a kitchen or similar commercial activity, it is unlikely to be a compelling security for lending.

And it isn’t just flats that suffer this issue or properties with commercial premises directly below. Any commercial premises directly adjacent to a property or within a few hundred yards may present problems.

The main consideration is how it affects the desirability of a property. A haulier’s yard fifty meters from a house could limit your choice of lenders but probably wouldn’t leave you without mainstream options. A house abutting a giant scrapyard would likely be a challenge.

Be aware as a potential purchaser of such a property; hard to mortgage may mean hard to sell. And a property that might have a few interested lenders during a boom; may be harder hit by falling prices in a downturn due to a total lack of interested lenders.

For further information and advice on flats over or adjacent to commercial property, call one of our mortgage advisors on 0345 4594490 for independent mortgage advice.

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Don’t believe the tripe; mortgage calculators for maximum loans? How much can you really borrow?

The next part of my series: why you should use a mortgage broker, is the mortgage affordability calculator.

We do a little pay-per-click advertising on various search engines; this is no secret. 

But it surprised me to get so many hits on the somewhat spurious term; mortgage calculator. It occurred to me that this might be people searching for their maximum loan amount rather than monthly payments.

If this is the case, and you are reading this article because you want to know how much you can borrow, let me explain something; most consumer-facing calculators for maximum loans are a waste of your time. Plain and simple.

This is particularly true with calculators on mortgage brokers’ websites or those on comparison sites. 

Every lender has a different method of calculating how much of your income to consider, and how many times that income they will lend in different scenarios (such as lower amounts for smaller deposits).

They all have individual approaches to factoring in typical expenditures or calculating other commitments like credit card debt; or other loans. 

They may deduct a figure for each dependent child you have; they may use a form of stress testing based on a notionally higher interest rate too.

In short, it is highly nuanced. It is extremely difficult to create a calculator that accurately reflects these subtleties; most sites present a very conservative and vastly oversimplified figure as a gimmick. 

So whilst it is tempting to get a quick answer to these questions, they are rarely worthwhile having.  

Even the calculators on lenders’ intermediary websites are highly dependent on individual case-by-case discussions of a client’s circumstances to ensure the figures entered will reflect the values as interpreted by the lender; it requires considerable industry experience to get even these calculators to produce accurate outcomes. 

It may seem laborious to speak to a mortgage adviser, but an experienced one should be able to condense all that nuance into a relatively brief conservation; that’s the real hidden value of a human advice process. 

• Credit scoring and lending criteria
• Don't believe the tripe
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