Buying a flat above a shop, pros and cons?

wendyi

We have an opportunity to buy a flat above a shop in a small rank of shops in a residential area.  The flat is at the end of a rank above a hairdressers and next to a funeral directors.  The flat has it's own entrance and parking spot.  It's a great price for the area and very rentable.  The vendor is selling the freehold to the building with the flat which includes freehold for the hairdressers below.  We know the area well as my parents live around the corner.  There is currently no late night convenience store there.  There is a Chinese takeaway at the other end of the rank but the area is not currently plagued with kids hanging around outside although I'm aware this could change as could usage of the shops.  The next door flat has expanded into the attic so there's potential to add value too.  What should we consider?  We already have some buy to let houses.

SDLT_Geek

If you buy the freehold then the SDLT will be worked out on the "mixed use" rates.  During the SDLT holiday that could mean more SDLT, but generally the mixed use rates are less, especially if the 3% extra for additional properties would have applied to a residential property (the 3% surcharge does not apply to mixed use property).

Others will tell you whether this will make it more difficult to get mortgage finance.

eddddy

Do you need a mortgage?

It's very unlikely that a mainstream bank would lend on a flat over a shop. Probably even more so, if it's over a hairdresser (potential risk of odours permeating upwards), and being near a Chinese takeaway would 'scare' lenders even more.


You might be able to find a 'sub-prime' mortgage lender who would lend, but expect the mortgage to be very expensive. Maybe talk to some brokers who specialise in sub-prime.

You can google some keywords like 'mortgage flat above shop' - lots of brokers will appear - but many might be dodgy. e.g. They ask for a fee upfront to search for a suitable lender, then tell you their search was unsuccessful (and you don't get your fee back).


For this reason you should expect to buy the flat cheap, and to sell the flat cheap - when you eventually want to sell.



Also, do you want the hassle / responsibility of being the freeholder of a hairdressing shop? You might have to do a lot of reading-up on being a commercial landlord.

user1977

eddddy said:

It's very unlikely that a mainstream bank would lend on a flat over a shop.

I wouldn't go that far, I think it depends more on the local market and what the valuer thinks. In many urban locations it's pretty commonplace and there's going to be a healthy market, but if you're e.g. in a small town and one of only a handful of flats in that sort of situation, more of a problem.

Doc_N

Take very great care - this is a very risky prospect which could lead to financial loss. 

Planning consent can be obtained for a change of use from an innocent shop or hairdresser to a fish and chip shop, late night takeaway or a dry cleaner - entirely different prospects which can destroy value in residential accommodation nearby.

HampshireH

Doc_N said:

Take very great care - this is a very risky prospect which could lead to financial loss. 

Planning consent can be obtained for a change of use from an innocent shop or hairdresser to a fish and chip shop, late night takeaway or a dry cleaner - entirely different prospects which can destroy value in residential accommodation nearby.

Surely that would need freeholder consent and OP would be the freeholder of the hairdresser so impact from below shouldn't be a concern

K_S

@wendyi From a mortgage point of view (which will impact both the ease/cost of buying and selling/remortgaging later on), you may come up against LTV caps or be restricted lender-wise.

That doesn't automatically mean a higher cost though, as there are a decent number of mainstream lenders who may consider, based on the limited info in your post.

The main aspect will be the location of the property. For example, a 300k+ flat above a shop on a south London high street is almost always mortgageable at mainstream rates and high LTV. However, the exact same kind of flat on the high street of a small town might be harder to place. 

user1977

HampshireH said:

Doc_N said:

Take very great care - this is a very risky prospect which could lead to financial loss. 

Planning consent can be obtained for a change of use from an innocent shop or hairdresser to a fish and chip shop, late night takeaway or a dry cleaner - entirely different prospects which can destroy value in residential accommodation nearby.

Surely that would need freeholder consent

Depends what the lease says. 

csgohan4

if you don't need a mortgage and you want to add it to your BTL portfolio, then possible reasonable to buy. But the value may be volatile due to what shop is underneath. 

it would be a no from me

TimothyRS

Agree with the above user, if it's in an urban location it's very common to have flats above commercial property and all high street lenders are used to lending against these, just with slightly lower valuations to an equivalent property without any commercial underneath 

Pros:
- discounted property with no practical difference (if a quiet shop)
- no neighbours below you once shop closes
- convenience (e.g. receiving packages, odd purchases)
- extra security 

Cons
- if it's a noisy or smelly shop like a restaurant or bar then it comes with some nuisance 

oldernonethewiser

Wonder if the OP has made a decision in the last three years