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Getting a Mortgage on a Home Adjacent to Commercial Properties

Mixed commercial use properties or a residential home next to your business premise can be a tricky mortgage prospect. Our guide explains the factors to look at and what a lender will ask before offering a mortgage on a home next to a commercial premise.

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Almas Uddin

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Getting a Mortgage on a Home Adjacent to Commercial Properties

Many UK homes are close to shops, businesses or industrial areas, and it can be tricky to find competitive mortgage lending in this situation.

Here we'll explain the risk factors to buying a home close to commercial properties and the circumstances that will impact the likelihood of mortgage approval.

If you have been turned down for mortgage lending or would like to find the best mortgage rates for your property purchase, contact Revolution Brokers on 0330 304 3040, or email the team at [email protected].

Can I Mortgage a Residential Property Next to a Business?

You can, and several specialist lenders offer mortgage products in this scenario.

First, let's consider the advantages and disadvantages to bear in mind before going ahead with the property purchase.

Advantages of buying homes in commercial areas:

  • In many cases, houses and flats in city centres will be close to business premises and offer high rental returns in desirable locations.
  • Most homes next to businesses are cheaper than properties in solely residential areas.
  • The impact of noise and traffic will depend on the type of business - for example, an office building is unlikely to be in use overnight and on weekends.
  • In many cases, the neighbours own and trade from the property, and professional businesses are usually desirable neighbours.
  • Being in a central district usually offers advantages such as being close to other facilities such as shops and restaurants and public transport networks.
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What are the Downsides to Buying a Home in a Commercial Area?

As with any property purchase, it is vital to consider any potential pitfalls before going ahead.

  • Food industry businesses and factories can be noisy and produce odours.
  • Delivery times can be very early in the morning, or late at night.
  • Commercial premises will usually have large waste bins, advertising, or lighting that can be disruptive.
  • Homes in commercial areas can be challenging to sell and might have a more volatile market value.

Why is it Hard to Get a Mortgage on a Property in a Business Zone?

Many lenders consider homes in commercial areas higher risk. Factors such as smells and noise can make a property harder to sell, and so it is less of a safe bet that the lender will recoup the monies owing if they were to end up in a repossession scenario.

However, there are many factors to consider. For example, in London, many homes are close to, next to, or above businesses, and likely to retain their resale value.

What are the Lending Criteria for Flats Next to Businesses?

Lenders will assess both your circumstances and the property itself, including:

  • How much you earn.
  • The stability of your employment.
  • How old you are.
  • Your credit history.
  • What type of property you wish to mortgage.
  • The commercial premises nearby.

This last factor is essential since commercial business properties are categorised as below. The lower on this list, the higher the risk, and the more complex the mortgage application:

  • Class A1 - shops.
  • Class A2 - professional businesses.
  • Class A3 - food and drink.
  • Class A4 - bars and pubs.
  • Class A5 - takeaways.

What Deposit Do I Need to Mortgage a House Next to Business Premises?

Deposit requirements vary considerably depending on your affordability assessment, credit rating, and property's total price.

Most residential mortgages require a minimum of 5% or 10% deposit, although the higher the deposit you can offer, the lower the risk, and the better the interest rates.

If your circumstances are complicated, or you earn a variable income through self-employment, for example, you may need a higher deposit.

Any additional risk factors require a more considerable deposit value to offset the lender's risk, and will usually be around 15% to 25% depending on the situation.

Why Do Mortgage Lenders Reject Mortgage Applicants with Bad Credit Wanting to Buy a Flat Next to a Business?

Many people experience credit issues from time to time, and even if any of the below show on your credit file, you can still get a mortgage from a specialist bad credit lender:

  • Low credit score, or no credit score.
  • Late payments or mortgage arrears.
  • Defaults or CCJs.
  • Debt Management Plans.
  • IVAs.
  • Bankruptcy or repossessions.

Bad credit increases the lender's risk, so usually, you will need expert help from a broker to negotiate the rates and terms.

Can I Get a Buy to Let Mortgage for a Flat Above a Business?

You can - the same risk assessment applies as to residential mortgages, but there are plenty of buy to let lenders who will consider financing an investment property above a business.

Generally, you will need a deposit of 25%, although some lenders will accept 20% or even 15% if you can demonstrate high rental returns and meet all the other criteria.

What Happens if I Buy a Leasehold Flat and the Next Door Business Owner is the Freeholder?

Often, a business owner will own the freehold to a property, or a block of properties, and rent out flats or houses next to their business.

If the business owner is also the freeholder, you will need to pay service charges and ground rent in addition to your mortgage repayments.

This can be both a good and a bad thing, so it's wise to seek professional advice about the freehold structure before proceeding.

Expert Advice on UK Mortgages for Homes Next to Commercial Properties

There are millions of homes next to shops, in blocks of properties next to business, or industrial areas.

While some lenders find these properties harder to loan against, a professional broker with an independent overview of the lending market can recommend the best providers who will be happy to consider your application.

For further assistance, contact business finance broker on 0330 304 3040, or email us at [email protected].

Almas Uddin
Almas Uddin

Founder and Mortgage Advisor

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FCA disclaimer

The content included in our articles, blogs, web pages and news publications is based on information accurate at the time of writing. Note that policies and criteria can change regularly throughout the UK mortgage lending market, and it remains essential to contact the consultation team to receive up to date guidance. The information included on the Revolution Brokers site is not bespoke to any circumstances or individual application scenarios and therefore is not intended to be used as financial advice. The content we share is designed to be informative and helpful but cannot be relied upon to provide individual advice relevant to your mortgage requirements. All Revolution team members are fully qualified, trained and experienced to provide mortgage advice of an independent nature.

We collaborate with lenders and providers who are regulated, authorised and registered with the Financial Conduct Authority (FCA). Should you require specific mortgage borrowing types, some products such as buy to let mortgages may not be FCA regulated. The Revolution team can provide further information about regulated and unregulated lending as required. Please remember that a mortgage is a debt which is secured against your home or property. Your home can be at risk of repossession if you do not keep up with the repayments or encounter any other difficulties in managing your mortgage borrowing responsibly. This also applies to any remortgage or home loan secured against your property, including equity release products.

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