Remortgage a Flat Above a Shop

Why Is Remortgaging a Flat Above a Shop Different?

Lenders assess risk when deciding whether to offer a mortgage, and flats above commercial premises carry additional considerations that do not apply to standard residential properties.

The main concerns for lenders include:

• Resale risk — Properties above shops can be harder to sell, which means the lender's security may be more difficult to realise if they need to repossess.
• Fire and safety risks — Certain commercial uses, such as takeaways, restaurants, or dry cleaners, may increase fire risk or produce strong odours that could affect the residential unit above.
• Noise and disturbance — Late-night commercial uses such as bars, nightclubs, or entertainment venues can affect the desirability and value of the flat above.
• Insurance complications — Buildings insurance for mixed-use properties can be more complex and expensive than for purely residential buildings.
• Valuation uncertainty — The value of a flat above a shop can be more volatile and harder to assess than a comparable flat in a purely residential building.

These factors do not mean you cannot remortgage. They simply mean that some lenders will not consider the property, while others will want to know more about the specific commercial use below before making a decision.

Which Commercial Uses Do Lenders Accept?

The type of business operating below your flat makes a significant difference to your remortgage options. Lenders generally categorise commercial uses by the level of risk they present.

Generally accepted (lower risk):

• Estate agents and letting agents
• Offices and professional services
• Retail shops (clothing, gifts, bookshops, etc.)
• Hairdressers and beauty salons
• Pharmacies and opticians
• Banks and building societies

Sometimes accepted (moderate risk):

• Cafes and coffee shops
• Restaurants (particularly those without late-night licences)
• Convenience stores and small supermarkets
• Dental surgeries and GP practices
• Veterinary practices

Often declined (higher risk):

• Takeaway food outlets
• Bars, pubs, and nightclubs
• Betting shops and gambling premises
• Dry cleaners and launderettes
• Petrol stations
• Industrial or manufacturing premises

It is important to note that criteria vary significantly between lenders. A commercial use that one lender declines may be perfectly acceptable to another. This is why working with a broker who understands this niche can make a real difference to your outcome.

How to Improve Your Chances of Approval

If your flat is above a commercial premises, there are several steps you can take to improve your chances of securing a competitive remortgage deal:

Know your building

Gather as much information as possible about the commercial unit below. What type of business operates there? What are their opening hours? Is there a separate entrance to the residential flat? Does the commercial unit have any fire safety certifications? The more information you can provide, the easier it is for lenders to assess the risk.

Separate access is key

One of the most important factors for lenders is whether the flat has its own separate entrance that is independent of the commercial unit. Properties with their own street-level door and private staircase are viewed much more favourably than those that require access through the shop.

Self-contained accommodation

Lenders strongly prefer flats that are fully self-contained with their own kitchen, bathroom, and living space. Properties that share any facilities with the commercial unit below are much harder to mortgage.

Good condition and maintenance

Ensure the flat is in good condition. Any issues such as damp, structural problems, or evidence of pest activity related to the commercial use below will concern lenders and valuers.

Insurance documentation

Have details of your buildings insurance ready. Lenders will want to see that the property is adequately insured and that the policy covers the mixed-use nature of the building.

Work with a specialist broker

A mortgage broker who regularly handles flats above shops will know exactly which lenders are most likely to accept your property. They can also help present your application in a way that addresses lender concerns upfront, reducing the risk of delays or declines.

Valuation Considerations for Flats Above Shops

The valuation of your flat is a crucial part of the remortgage process, and flats above shops can present unique challenges for surveyors.

Finding comparable sales

Surveyors rely on comparable sales data to determine a property's value. In areas where there are many flats above shops, finding comparables is relatively straightforward. In areas where such properties are less common, the surveyor may need to look further afield or make adjustments to account for the commercial element.

Factors that affect the valuation:

• The type of commercial use below and its perceived impact on the residential unit.
• Whether the flat has separate access from the commercial premises.
• The proportion of commercial to residential space in the building.
• The location and overall demand for similar properties in the area.
• The condition of both the flat and the commercial unit.
• Any potential environmental or safety issues associated with the commercial use.

Impact on your LTV

If the surveyor values the property lower than you expected, this will increase your loan-to-value ratio and could affect the rates available to you. In some cases, you may need to reduce the amount you wish to borrow or look at alternative lenders who may take a more favourable view of the property.

Being prepared for a potentially conservative valuation can help you plan accordingly and avoid disappointment.

Leasehold Considerations for Flats Above Shops

Many flats above shops are leasehold properties, which adds another layer of considerations when remortgaging.

Lease terms and commercial use:

Your lease should clearly define the permitted use of both the residential and commercial parts of the building. Lenders will want to see that the lease does not allow the commercial unit to change to a more problematic use without appropriate consent.

Service charges and maintenance:

In mixed-use buildings, the apportionment of service charges and maintenance responsibilities between the residential and commercial units can vary. Ensure you understand your obligations and have documentation that clearly sets out the arrangement.

Buildings insurance:

Insurance for mixed-use buildings is typically more complex than for purely residential buildings. The policy needs to cover both the residential and commercial elements, and the commercial use can affect the premium and terms. Lenders will want to see that adequate cover is in place.

Lease length:

As with any leasehold property, the remaining lease length is important. Most lenders require at least 70 to 85 years remaining. If your lease is shorter, you may need to consider a lease extension before or as part of your remortgage.

Freeholder cooperation:

Having a cooperative freeholder who maintains the building properly and responds to requests in a timely manner can make the remortgage process smoother. If there are any disputes with the freeholder, these should ideally be resolved before you apply.

What If You Are Struggling to Remortgage?

If you have been declined by a lender or are finding it difficult to secure a competitive deal for your flat above a shop, there are several alternative approaches to consider.

Product transfer with your existing lender

Your current lender already holds the mortgage on the property, so they may be willing to offer you a product transfer to a new deal without the need for a full reassessment. This can be particularly helpful if the commercial use below has changed or if you are finding it hard to meet other lenders' criteria.

Specialist brokers

If you have been searching for deals yourself or working with a generalist broker, consider consulting a specialist who focuses on non-standard properties. They may have access to lenders and deals that are not widely advertised.

Wait for commercial changes

If the current commercial use is particularly problematic (for example, a late-night takeaway), you might find that your options improve if the tenant changes. A new commercial tenant with a less risky use could open up more lender options.

Consider a higher deposit

If possible, reducing your LTV by making a lump sum payment against your mortgage before remortgaging can improve your options. Lenders are generally more flexible on property type when the LTV is lower, as their exposure to risk is reduced.

Explore local building societies

Local and regional building societies sometimes take a more flexible and pragmatic approach to properties in their area. If your flat is above a shop in a local town centre, a local building society may be more willing to lend than a national lender that applies blanket criteria.

Remember, being declined by one lender does not mean all lenders will take the same view. The mortgage market is diverse, and the right broker can help you find a solution that works for your situation.