Buying a flat above commercial - london

LeagueOfWolf

Hi sorry yet ANOTHER post about buying a flat above commercial.
I had a google read the existing and most aren't recent so here's my story.

Been looking for a flat for over 5 months. I'm on the lower budget range so I've been outbid on several properties - finally set my eyes on this small but modest studio flat above a hairdressers. Plus it's one of the only few I can afford I really like it and see great potential and it was cheap (for obvious reasons). I'm rarely at home and always out so the 24hr tube nearby is a big bonus for me. I'm quite young and I like the bustle and convenience of living on the high street. If I wasn't to buy this property I'm the type who would be renting to live in these type of property. The rent for this area is between £800-£1100 and so my mortgage repayment would almost be half that amount!
I want to live in it a couple of years to commute to work and then change my mortgage to rent it out/move back home, my pay (hopefully) rises every year then I can save remortgage and buy another place - will I have issues remortgaging such property 5-10 years from now?

This flat is within my budget, offer has been accepted the estate agent has negotiated that I pay seller fees and reduced my offer so that the total amount is the same as my initial offer - no idea why they have done this maybe for a faster sale??

The mortgage broker is emailing surveyors about possible lending on these types before we go ahead with my application.

But I just would like to know the complications, factors, what I need to really look out for, things I need to enquire about or beware of? I would like advice mainly from those who live/own properties above commercial properties.If there is no service charge it means there would be no building insurance? How costly approx is this as the building is looking quite old on the outside. Lastly...am I being dumb by desperateness to see the issue of this property? my best friend is slightly worried and my mum is too but they always support my decisions but now its made me feel like I need to be more wary.

All help appreciated knowledgeable ones thank you!

needhouseadvice

where in london is it? personally i would avoid as i read a thread here recently about someone saying they were having trouble shifting a flat above a commercial property as buyers couldn't get a mortgage on it. what's your budget?

needhouseadvice

also prices are falling in london. could you not wait a few months?

LeagueOfWolf

Hi this flat is £155,000.
I'm pretty sure I wont be able to get that in the same zone 2 or zone 3? It is surrounded by lots and lots of new builds some finished some are in production which are going for 300-400K.
My budget is up to £175,000 I have been looking at zones 4-6 and they have been miserable or really nice. But all the nice ones, all 5 of them, I've been outbid on. Maybe there is something wrong with this flat that I am missing? I need to find out if the licensing for the shops below are subject to change to restaurants or something even worse... a Morley's chicken shop.

KiKi

I lived above a shop (two floors above) and just made sure the shops underneath me couldn't be converted into food outlets (for the smell if nothing else).

Regarding the service charges, they have been '£0' this year, but I find it very hard to believe that the property doesn't have any % liability for the overall costs of the building.

Usually (forgive me if I'm teaching you to suck eggs here!) each flat within a property has a responsibility for a percentage of the overall service charges. That percentage is written into the lease. You need to know what it is. If it is indeed 0% - and you have NO liability for ANY service charges, ever, then okay...but I doubt that very much. They probably just don't know the liability as they've either not read their lease, or they've not had to pay out for anything. Also, check how ground rent is calculated (and whether they can suddenly change that without warning).

When I lived in my first flat, there were two shops and five flats in the property. My one bed flat had 20% responsibility for the service charges. In addition to £800/year service charges and £125/year ground rent, I was hit for massive bills each year for 'work' that I never saw done. In the last two years I had to pay £6k for work that I didn't see done, and I'm convinced was a set up for a particular maintenance company.

You definitely want to see the accounts for the last 5 years, and to know what's been spent on service charges, and also to know if there are any planned works - small or large - that you'll be liable to pay for.

One final thing: selling in the future will be harder if you live over commercial property, and studio flats IME don't rise in line with the price of other properties. So if you can afford a one bed rather than a studio, I would.

EDIT: also, electric only means VERY expensive heating, and the fact that it's on an electricity key system means that it's the most expensive way to pay for electricity, too. To be honest, there's probably a reason it's selling at £155k.

HTH
KiKi

KiKi

Which area is it? So we can see on Rightmove and might be able to offer more insight.

LeagueOfWolf

Thanks so much KiKi your post was really insightful. I am going to query the estate to query the seller about the % of responsibility written in the lease this week.
It's in proper east london, Newham. I like the area and stratford is close by for shopping lol

I wish I could afford a 1 bedroom. I have been looking but I have been outbid on many many occasions as my budget is low. There's barely any properties out there and there is a lot of competition between buyers with the same rock bottom budget.
I really like this flat it's gutting it's above a shop. All I want really is a place I can do up and make my home for a couple of years. I don't know if I would want to re-sale but I would defo want to remortgage so if there are issues remortgaging a flat over commercial then

What happened to your flat? did you sell it/have issues selilng? Renting it out?

Out,_Vile_Jelly

If you're planning on moving "back home" in a few years, can you not just live in a cheap house share, save like mad on your London salary and aim to buy something much larger and nicer outside the city?

Studio flats have a limited resale market, as do flats above shops, and Newham is not likely to be gentrified any time soon.

needhouseadvice

Bexa wrote: »

Hi this flat is £155,000.
I'm pretty sure I wont be able to get that in the same zone 2 or zone 3? It is surrounded by lots and lots of new builds some finished some are in production which are going for 300-400K.
My budget is up to £175,000 I have been looking at zones 4-6 and they have been miserable or really nice. But all the nice ones, all 5 of them, I've been outbid on. Maybe there is something wrong with this flat that I am missing? I need to find out if the licensing for the shops below are subject to change to restaurants or something even worse... a Morley's chicken shop.

That's a really low budget for London. I didn't even know you could get something so cheap here. I just bought a studio too as my budget was limited but I so wish I had waited and just saved up for a few more months.

Also, there were things I overlooked about the flat as I thought I had to be realistic about what I could buy. But there's being realistic and compromising too much just to get on the ladder.

Things really aren't looking good for the economy at the moment. Studios are hard to sell in a downturn, so are flats above commercial premises. Could you not stay at home and save for a year? Also prices are falling - how would you feel if you bought this flat and it was worth £10-20k in a few months?

You say you're young, would you not prefer to live in a flat share for a few years in a nicer area and not have the responsibility of maintaining a property?

Sorry to be harsh but I really wish I had listened to people who warned me in a similar fashion before I bought my place.

KiKi

I wish I could afford a 1 bedroom. I have been looking but I have been outbid on many many occasions as my budget is low. There's barely any properties out there and there is a lot of competition between buyers with the same rock bottom budget.

There are places marginally further out on a budget of £175k.

I really like this flat it's gutting it's above a shop. All I want really is a place I can do up and make my home for a couple of years. I don't know if I would want to re-sale but I would defo want to remortgage so if there are issues remortgaging a flat over commercial then

If you're truly only going to live in it for two years, then I'm really not sure what you're going to get from it. And, honestly, I wonder if you're being blinded by desperation to buy! Have you ever lived in a studio before? Are you aware how claustrophobic it can be? Only asking as you're used to living in your family home.

To re-sell: it will be harder to sell a property above a shop, full stop. You'll have to pay solicitors fees, moving fees, stamp duty to buy it - and then you'll have to pay solicitors fees and moving fees again to sell it on. That could well outweigh any profit you make - studio flats do not appreciate in the same way that larger properties do, IME. And you're going to have to pay a lot to fix the kitchen and bathroom. Plus any freehold bills - which you have almost no control over.

Any rental value - if you don't re-sell it - may not outweigh the mortgage, and you may well find it harder to let a studio rather than a one-bed or two-bed flat. Being a landlord also comes with a host of legal responsibilities and costs. You'll have to move to a BTL mortgage - assuming you can get one - and most of these have conditions (such as 25% deposit) and interest rates are higher. You have to pay tax on the income from the property, and whilst you've got that property, you'll have to try and save for a whole new property and mortgage. Savings that might be easily spent on repairs and service charges from your tenant and freeholder. In the very long term you'll probably make some money on it, but in the short term that's unlikely.

What happened to your flat? did you sell it/have issues selilng? Renting it out?

I considered letting it - but I'm so glad I didn't. I sold in the end. Short story of that: I found my dream two-bed flat, and put my one-bed (above the shop) on the market. I'd bought for £75k, and was selling for £120k five years later - this was just as property prices shot up (2001-6). First buyer pulled out, because of the services charges. Second buyer had wobbles about service charges. I went ahead and bought my dream flat anyway, thinking I could let the one-bed if I needed. Six months later I was still paying the mortgages on two flats, because that's how long it took the second buyer to go through to completion. After completion, the new owner continued to have to pay large service charge bills, and I was very grateful I was out of there!

I stayed in my two-bed flat for eight years. When I moved to my current house, out of nosiness I checked to see if my old flat had been sold since. It had - a year earlier. And, despite having had it seven years, the owner had only sold it for £135k, and made very little on it comparatively.

I don't see what you'll gain from this if you only plan to have it for two years. If you sell it, you'll probably be no better off that you are now, unless prices shoot up in that area (assuming you're not paying rent currently), and in the worst case you might end up owing lots of bills to a building that's old and needs repairs. If you let it out, who knows when you'll start to make a profit, and in the meantime all that money that you spent buying it and paying a mortgage could have been saved towards a larger deposit for a bigger and nicer place.

As you can afford more, why not hold out for something really nice, or flat share in the meantime? This is a personal thing (and may not be applicable to you) but living somewhere horrid and miserable which needs lots of repairs and has issues, and a replacement kitchen and bathroom (and who knows what you'll discover when you get that work done?) can be SO depressing and unhappy. Especially when you're basically living in one room. But that might not bother you.

I hunted it down on RM and can't find it - can you post a link? If not (or if you don't want to) what I will say is that there are lots of other properties in your range slightly further out with mainline links to London, and look very nice. However, if you're really only wanting something for two years, I think you're better of SAVING it all for now, doing the longer commute, and spending your money on something better. JMO, though.

needhouseadvice

Also another thing to add which I didn't realise when I bought (stupidly) to rent it out you need either consent to let from your lender on the same mortgage or change to a buy to let mortgage - those usually require 25% deposit - so unless your property goes up in value or you're putting in a 25% deposit now, you're not necessarily guaranteed to get permission to rent it out.