Secured loans on flats above shops and commercial premises

How lenders typically treat it

A general guide to how the market behaves, not a promise about any lender. Criteria change and every case is assessed individually. See the lender criteria database for named lenders.

Why does the business below the flat matter so much?

Because a lender is not only lending against your flat, it is lending against everything that affects whether your flat could be sold. A flat above commercial premises is worth less than an identical flat in a residential block, and how much less depends almost entirely on what is downstairs. Buyers and their mortgage lenders discount for cooking smells, extractor fans, late-night noise, deliveries at dawn, bins and vermin, and, at the extreme, the fire risk of a deep fat fryer under the bedroom floor.

There is a second, quieter reason. The business below can change. A quiet office today can be let to a takeaway when the lease ends, and the lender has no control over that. Some lenders therefore price for the worst plausible use of the unit rather than the current one, and many will ask what the planning use class of the commercial unit is, since a unit with a permitted hot food use is a risk even while it houses a florist.

The result is a sliding scale rather than a yes or no. At one end sit flats above offices, banks, estate agents, hairdressers, opticians and non-food shops, which many secured loan lenders consider at a modestly reduced loan to value. In the middle are cafes, convenience stores with hot counters and small restaurants. At the far end are takeaways, pubs, bars, nightclubs, launderettes and anything involving fuel, chemicals or vehicles. The further along that scale your flat sits, the fewer lenders will look, the lower the loan to value they offer and the more likely the rate is to be higher than a standard flat would attract.

Which businesses below make a secured loan hardest?

Hot food is the most common exclusion. Fish and chip shops, kebab and burger takeaways, Indian and Chinese restaurants and anything with commercial frying equipment concern lenders for three reasons: fire risk, which also pushes up buildings insurance; smell and grease, which affect resale; and late opening hours, which mean noise and footfall under the flat until the early hours. Some lenders decline all hot food; others draw a line between a daytime cafe or bakery and an evening takeaway; and a few will consider anything at a lower loan to value if the valuer is comfortable.

Licensed premises come next. A flat above a pub, bar or nightclub combines late hours with alcohol-related disturbance, and many lenders exclude it. Launderettes and dry cleaners are excluded by some lenders because of solvent and fire risk, and petrol stations and vehicle workshops because of contamination and fumes.

The easier cases are worth stating too, because many owners assume any shop is a problem. Offices, solicitors, accountants, estate agents, banks and building societies, opticians, pharmacies, hairdressers, beauty salons, clothes shops, newsagents and most retail without cooking are considered by a good number of lenders. A convenience store is usually fine unless it has a hot food counter or a late licence. If you are not sure how a lender would classify the business below you, describe it precisely to the adviser, including its opening hours and whether it cooks, rather than summarising it as "a shop".

Does separate access make a difference?

A great deal. Most lenders want the flat to have its own entrance from the street, or from a communal hallway that is entirely separate from the commercial unit, so that the flat can be occupied, sold and if necessary repossessed without any involvement from the business below. A flat reached through the shop, through a rear yard controlled by the shop or via a fire escape is a different matter, and many lenders will not consider it at all, because the flat cannot really be sold as an independent home.

Related questions follow. Does the flat have its own utility meters, or are gas and electricity shared with the shop? Is the flat on its own lease and title, or is it part of the commercial lease? None of these is necessarily fatal, but each one adds a question the valuer and the lender's solicitor will need answered. Separate title, separate access and separate services is the combination lenders like; the further your flat departs from it, the harder the case becomes.

Tenure matters as well. Most flats above shops are leasehold, and the freeholder is frequently the owner of the shop, which can make service charge and repair arrangements informal. The lease still needs to meet the lender's minimum length at the end of the term, and a lender will want to see that the lease sets out who repairs the roof and structure. Our secured loans on leasehold flats page covers the lease length and ground rent rules that apply on top of everything else on this page.

How much can you borrow against a flat above a shop?

Less than against a standard flat of the same value, for two reasons. The valuation is likely to come in lower, because the valuer applies a discount for the commercial use below, and the lender then applies a lower combined loan to value cap to that reduced figure. Where a standard flat might allow 80% or 85% combined, a flat above a shop is commonly capped at 60% to 70%, and lower again above the harder uses.

Worked through, the effect is noticeable. Suppose your flat would be worth £220,000 as a standard flat but the valuer sets it at £200,000 because of the cafe below, and your mortgage is £120,000. At a 65% cap the lender's total exposure limit is £130,000, leaving £10,000 available. At 70% it is £140,000, leaving £20,000. Against a standard flat at £220,000 and 80%, the limit would be £176,000, leaving £56,000. The property type does not change what you owe, but it can more than halve what you can raise, which is why owners of flats above shops sometimes find the secured loan smaller than they hoped.

Affordability applies on top, in the usual way. The lender checks that the new payment fits alongside your mortgage, your service charge and your other commitments, normally treating the debts you are consolidating as cleared. Our guide to how much you can borrow covers that calculation, and our low equity page is relevant if the numbers above leave you short of the amount you need.

What would a secured loan on a flat above a shop cost?

The rate is set by your credit history and the combined loan to value rather than by the property type directly, but because fewer lenders consider flats above commercial premises, the best rate you can actually access may be higher than a standard flat would attract. The example below uses the fixed illustrative rate applied across this site.

Monthly outgoings on the two debts fall from £532 to £190 in the example, while the total repaid over 15 years, £34,196, is well above the £20,000 borrowed because the term is longer than the original debts would have run. The loan is secured on your flat, and if you do not keep up the payments your home may be repossessed. If the debts feel unmanageable rather than simply expensive, free and impartial advice from MoneyHelper, StepChange or Citizens Advice should come before any secured borrowing.

What improves your chances

• Describe the business below precisely: what it sells, whether it cooks, its opening hours and whether it holds an alcohol licence.
• Confirm the flat has its own street entrance and its own utility meters, and be ready to say so on the enquiry.
• Check the lease: its remaining length, who the freeholder is, and who is responsible for the roof and structure.
• Find out the planning use class of the commercial unit, since some lenders judge the permitted use rather than the current tenant.
• Keep the request modest; a combined loan to value of 60% or below is placeable with far more lenders than one at 70%.
• Use a broker who handles flats above commercial premises regularly, because lender appetite for each business type differs widely.

Alternatives worth considering

If your mortgage deal has ended, a remortgage to pay off debt is worth comparing, since a few mainstream lenders take flats above quiet commercial uses and the whole balance would then sit on one rate. For smaller sums, a personal loan sidesteps the property question entirely; our secured loan versus personal loan comparison shows where each makes sense. And if the debts are unmanageable rather than merely expensive, a debt management plan or an IVA arranged through a free debt charity may be the more honest route; see our comparison with an IVA.