Why Mortgages Above Shops Are Harder to Get & How to Improve Chances

Summary:

Mortgages for flats above shops offer convenience and passive income. But they are harder to secure due to higher fire risk, noise, mixed-use classification, and lower demand. Improve approval chances by using a specialist broker, offering a larger deposit, and providing clear lease details early.

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Are you a businessman who is looking for a passive income, or operate your shop while living in the same building? Then, mortgages above shops are the best option for you. This is commonly used by businessmen, such as office or small business owners, who require a permanent business premises while either residing in or renting out the flat above.

Flats above shops can be affordable and full of character, but securing a mortgage for one isn’t that easy at all. Lenders find these properties to be higher risk, which can make approval harder and interest rates higher.

In this guide, we explain the reasons why mortgages above shops are more difficult to get and steps to increase your chances for approval.

Why Are Mortgages Above Shops Harder to Get?

• Higher Risk of Fire and Insurance Issues: First things first, when opting for a commercial mortgage, it is essential to convince the lender of the loan. Shops, especially restaurants or businesses using machinery, increase the risk of fires, leaks, and structural damage. Lenders often avoid these mortgages or provide strict lending criteria for these risky investments.

  
  

• Proximity to Commercial Activity: You know it already, right? Shops often bring extra noise, smells, and late-night activity. It actually depends on what types of shops are on the ground floor. If you have a food business, bars and pubs, or a convenience store, it can make the property less desirable. And resale potential is one of the key lender considerations.

  
  

• Mixed-Use Classification: If you have researched online, you may find that the properties above are often considered mixed-use or non-standard construction. This can reduce your chances of getting an attractive mortgage. Mixed use generally indicates different lease arrangements, shared access points, and more complex valuations. This unclear information makes the lender’s job harder.

  
  

• Reduced Market Demand: Yes, you heard it right. Only a few people want to buy flats above shops. And you know it well as a businessman that lower demand is equal to higher risks. Lenders always stay away from potentially risky investments. If the documentation and your pitch don’t seem strong, they become cautious during approval.

  
  

• Impact of Different Types of Shops: Not all shops have the same impact on the above properties. Restaurants, pubs, dry cleaners, and nail salons come under high-risk shops. On the other hand, estate agents, pharmacies, offices, salons, and clothing shops make the properties easier to mortgage. The nature of the business highly influences the lender's interest.

How to Improve Your Chances of Getting an Approval from a Lender

Don’t worry! Here are a few ways to improve your chances of getting an approval from a lender. Here are the steps to follow:

• Use a Specialist Mortgage Broker: This is vital. Only a mortgage broker can help you obtain approval from a reliable lender easily. Remember, you have to look for a specialised broker. We have been in this industry for a long time and have been helping businessmen get the best mortgages above shops from reliable lenders.

  
  

• Save a Large Deposit: Most lenders require 20-25% deposits. However, riskier cases may need a 30-40% deposit if above multiple commercial units. A larger deposit reduces the lender’s exposure and can open more lending options.

  
  

• Strengthen Your Profile: A strong profile is a must-have to approve your loan from a lender. Even if the property is higher risk, a strong application helps offset concerns. You can improve your credibility by boosting your credit score, reducing existing debt, increasing available savings, and showing stable employment and income. A strong profile helps you get flexible lending options.

  
  

• Obtain Detailed Lease Early: Lenders will want clarity on who maintains what, how service charges work, the access and fire escape routes, insurance arrangements, and the shop’s trading hours. Having this information upfront smooths the process and reduces delays. That’s why you should maintain clarity and obtain a detailed lease early to get the approval fast.

Despite the challenges, many buyers secure mortgages above shops every year. Choosing the right lender, providing a solid deposit, preparing documents early, strengthening your financial profile, and getting expert advice. With the right strategy, a property above a shop becomes a smart and well-located purchase. Remember, strong preparation is the key to success.