Buying a flat above a shop: The pros and cons

Buying a flat above a commercial premises has its benefits. They are usually cheaper than normal flats. Plus, shops above flats are usually located in the heart of your village, town or city, which means you'll be living much closer to local amenities. Unfortunately, they also come with some downsides - fire safety hazards and noise problems to name a few.

In this blog, we're going look at the merits of leasehold flats above commercial premises. Are they worth the hassle? What are the mortgage options for flats above shops?

Why is it so hard to get a mortgage on a flat above a shop?

Is is harder to get a mortgage on a flat above a shop because of concerns about the resale value. Mortgages lenders will be concerned about:

• Fewer interested parties when selling
• Shops changing hands and purposes
• Smells from restuarants below
• Noise from the shops below
• Risk of fires from commercial properties

How are owners of flats above shops defined?

There are two types of property ownership in the UK: freehold and leasehold. A freehold owner is someone who owns their property outright, while a leasehold owner has the right to live in the property under terms of a lease agreement. This agreement usually lasts from 85 to 125 years.

Flats above shops are classed as leaseholds. In fact, most flats in the UK are defined as leaseholds. Leasehold arrangements provide a way to impose certain conditions on both the leaseholders and freeholders of properties. Shared areas can be maintained, while leaseholders are expected to contribute to the property's maintenance.

For more information on the differences between leaseholds and freeholds, check out our blog.

Is it worth buying a flat above a shop?

Unfortunately, no one can decide whether it's worth buying property but you. Properties above commercial premises have always found buyers, so they're obviously an attractive option to some. To help you decide, we've researched some pros and cons.

Pros of buying a flat above a shop

1. They are cheaper than standard flats

First time buyers are often tempted by flats above shops because they're cheaper than standard flats. While their cheaper price is a clear pro, it's a result of their shortcomings. Furthermore, while flats above shops are cheaper, standard flats are more likely to grow in value over time.

If you're thinking of buying, it's worth knowing how much money you have to spend. You find out by getting a free online house valuation with the GetAgent valuation tool.

2. They are attractive to young tenants

If you buy a flat above a shop, you could let out the property to young professionals or students. Young people are attracted to properties that are closer to local amenities, bars and restaurants.

Please note: If you are thinking of letting out your leasehold flat, you must check the terms of the lease agreement you have with the freeholder. They might prohibit you from subletting the property. We recommend always asking the freehold owner for permission. It's also worth nothing that if you're a leaseholder in London, you cannot let out your property for more than 90 days a year.

3. You can move somewhere you can afford

As flats above shops are cheaper than ordinary flats, you could move to an area that would have initially been out of your price range.

4. Bigger rooms and windows

Flats above shops, particularly in London, are usually of Victorian or Georgian heritage, which means they date back to the 1800s and 1900s. As a result, they have larger rooms and windows. This is a big plus for homeowners used to cramped living spaces and low ceilings.

Cons of buying a flat above a shop

1. Noise

Flats above shops are usually located in the heart of the town or city. Unfortunately, this means you will have to deal with noise from all sides. If you're living above a main road, expect early mornings to be filled with noise from cars, shoppers and dog walkers.

Another source of noise you'll have to deal with is from the premises below. How disruptive this will be depends on the type of business the owner is running. If it's a bar or restaurant, you can expect a greater level of noise than a store on the high street.

If you're thinking of choosing a flat above a shop, make sure you investigate the type of premises below. If your job involves working late and unsociable hours, you may find it harder to sleep in the mornings and evenings because of the noise downstairs.

2. Pests and odours

If the business below the flat is a restaurant or bar, you may have to contend with pests like rats and cockroaches as a result of food waste. Another risk, especially if the chefs are cooking often, is odours. If it's a chicken shop, there will likely be grease and grill fumes. We recommend that you ensure the property is well ventilated before purchasing.

3. Increased fire safety hazard

If you live above a restaurant or takeaway there will be chefs cooking below you, resulting in an increased fire safety hazard.

4. Access to your flat

If you're lucky, the front door to the flat will be located on the street, but it's not unusual for flat owners to have to walk through the restaurant or shop to get to their front door. In a less ideal scenario, it could be at the end of a dark alleyway. These conditions can be unappealing, so make sure you're happy with the type of access you'll have.

Another access problem is parking - will you have your own parking space, or will you have to share with customers? Make sure you find out from the freehold owner.

5. Future shop owners

You might consider yourself a lucky neighbour if the premises below are a greengrocer or a clothes shop. In such a scenario, you wouldn't have to worry about late night noise and fumes. However, you should not take it for granted that the business will be there forever. There's a very real chance that the premises will change hands a year or two after you buy the flat, making your future much less clear.

6. Getting a mortgage is difficult

Mortgage lenders are less inclined to lend to buyers of flats above shops for the reasons above. This could affect your chances of purchasing the flat, especially if you don't have a lot of spare cash.

One of the best things you can do to minimise this problem is hire a mortgage consultant. They can assess your situation and help you find a compatible mortgage lender.

Can you get a mortgage on a flat above a shop?

Yes you can although you will find less lenders willing to offer a mortgage and you may find you're offered a loan to value of 75% or less meaing you'll need a larger deposit.

What mortgages are available for flats above shops?

While it can be difficult to find a mortgage lender that will lend for this type of property, it's definitely not impossible. There are high street lenders and specialist lenders who offer mortgages if you know where to look. A reliable mortgage consultant can help you find the best one.

We cover specialist mortgages in much more detail here.

Remember, it's unlikely you'll be able to purchase a property like this without a sizeable deposit. Most flats above commercial premises require a deposit of at least 20% of the property's value.

Should I get a full building survey?

If you do buy a flat above a commercial premises, we recommend ordering a full building survey through a licensed conveyancer. A building survey will help identify any issues with the property, as well as the costs to fix them.

Any repairs paid for by the freeholder are divided equally. As a leaseholder, you will have a responsibility to pay for repairs pertaining to the whole building. Annual costs are usually paid as service charges. The service charge should include the following:

• Internal parts maintenance
• Buildings insurance
• Overall structural integrity
• Water rates

Your conveyancer will determine the extent of what the service charge covers and provide a breakdown of these costs. As commercial premises have expensive service charges, you should decide who pays what with the shop owner.

Please note that major works, such as roof works, are not covered solely by the freeholder. The leaseholder is expected to contribute, as roof works are deemed 'common parts' that benefit more than one person.

This type of property purchase demands a qualified conveyancing solicitor. You can learn more about choosing the right conveyancer with our guide.