Buy to Let Mortgages for Flats Above Commercial Premises: What Investors Need to Know
Flats located above shops, restaurants and other commercial premises can offer appealing rental yields and lower purchase prices compared with similar properties in purely residential areas. However, obtaining a mortgage for these properties is not always straightforward. Lenders apply different criteria to mixed-use buildings, viewing them as higher risk due to the commercial activity below.
This guide explains how buy to let mortgages for flats above commercial premises work, what lenders evaluate and how investors can improve their chances of approval. This article provides general information only and does not offer regulated mortgage advice.
Why Flats Above Commercial Properties Are Treated Differently
Mixed-use properties present additional risks compared with standard residential blocks:
- Noise and nuisance from commercial activity
- Smells, fumes and waste from food outlets
- Footfall and security concerns
- Potential for business failure affecting long-term value
- Valuation uncertainty, as fewer comparable sales exist
These factors can influence resale value and rental desirability, which lenders take into account.
What Types of Commercial Premises Cause the Most Concern?
Lenders typically group commercial units into “low risk” and “higher risk” categories:
Lower-risk units
- Offices
- Professional services (solicitors, accountants)
- Banks or financial services
- Small non-food retail stores
These are generally more acceptable to lenders.
Higher-risk units
- Fast food outlets and takeaways
- Pubs and bars
- Restaurants with extraction systems
- Convenience stores
- Dry cleaners and launderettes
- Hairdressers and salons
These activities may increase noise, odours or fire risk.
How Lenders Assess Buy to Let Mortgages for Flats Above Commercial Premises
1. Type of Business Below the Flat
Lenders assess the nature of the commercial activity and its potential impact on:
- Property value
- Long-term rental demand
- Insurance needs
Higher-risk businesses may reduce lender choice.
2. Proximity and Positioning
Some lenders are more flexible if:
- The flat has a separate entrance away from the commercial unit
- The commercial activity is not directly beneath the living areas
- The flat occupies upper floors further from the business below
These details are often reflected in the valuation report.
3. Loan-to-Value (LTV) Limits
Most lenders restrict LTV more tightly for mixed-use property:
- Standard buy-to-let LTV: up to 75%
- Flats above commercial: often 60%–70% maximum LTV
- Higher-risk commercial below: may require lower than 60% LTV
Having more deposit or equity increases lender availability.
4. Rental Income Coverage (ICR)
Lenders still apply standard buy-to-let stress tests, typically requiring:
- 125%–145% interest coverage ratio (ICR)
- Stress rate between 5.0% and 7.0%
If the flat’s market rent is strong, this can offset some perceived risk.
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5. Property Construction and Layout
Surveyors assess:
- Soundproofing
- Condition of shared areas
- Pipework and ventilation
- Fire escape routes
- Structural separation from the commercial unit
Issues here can affect suitability for lending.
6. Valuation Report Findings
Valuers consider:
- Comparable sales
- Marketability
- Impact of the commercial unit
- Local rental market conditions
- Desirability of the building as a rental property
Lenders rely heavily on the valuer’s comments for mixed-use cases.
Common Scenarios Where Lender Choice May Be Reduced
Scenario 1: Flat directly above a takeaway
Many lenders decline due to odour, fire risk and extraction fans.
Scenario 2: Flat above a pub or bar
High noise potential makes approval difficult with mainstream lenders.
Scenario 3: Flat above a quiet office building
Often acceptable and may qualify for standard buy-to-let criteria.
Scenario 4: Access only through the commercial unit
Lenders typically decline due to security and long-term suitability issues.
Scenario 5: Building part-owned by multiple entities
Complex ownership can reduce lender appetite.
Can You Get a Mortgage From a High Street Lender?
Yes — but depending on the premises below, options may be limited.
High street lenders tend to accept:
- Flats above offices
- Flats above non-food retail
- Flats with separate, secure access
They are far less likely to accept:
- Flats above restaurants
- Flats above bars
- Flats above high-nuisance businesses
If mainstream lenders decline, specialist buy-to-let lenders may still consider the case.
When Specialist Lenders May Be More Suitable
Specialist lenders are often used for:
- Flats above food or drink outlets
- Buildings with unusual layouts
- Flats with commercial leases attached
- Mixed-use buildings with limited comparables
- Multi-unit freehold blocks (MUFBs)
They use manual underwriting rather than automated scoring, allowing more flexibility.
What Investors Should Consider Before Applying
1. Rental Demand
Investigate whether the commercial activity below affects tenant interest.
2. Long-Term Maintenance Implications
Consider:
- Potential for noise complaints
- Effects of future business changes
- Wear on shared areas
3. Insurance Requirements
Mixed-use buildings may require specialised insurance.
4. Exit Strategy
Because some lenders restrict lending on mixed-use property, future refinancing options may also be more limited.
5. EPC Rating
Buy-to-let properties must meet EPC requirements — a factor for older mixed-use buildings where improvements may be needed.
How to Strengthen an Application for a Mixed-Use Buy to Let
(General Information Only)
Borrowers often improve approval chances by:
1. Providing strong rental evidence
Letting agent valuations can support the projected rental income.
2. Offering a lower LTV
Lenders take a more favourable view of mixed-use applications with more equity.
3. Ensuring clear, separate access
This makes the flat more secure and reduces lender risk.
4. Demonstrating strong financial conduct
Clean credit files and stable banking behaviour support the application.
5. Preparing for specialist lender requirements
This may include more documentation or enhanced property checks.
Summary
Buy to let mortgages for flats above commercial premises are entirely possible, but lender criteria are stricter due to the elevated risk associated with mixed-use properties. Key considerations include:
- The type of business below
- Property access and layout
- Loan-to-value restrictions
- Rental income coverage
- Building condition and valuation comments
While high street lenders may accept lower-risk scenarios, specialist lenders are often needed for more complex cases. Many investors successfully finance flats above commercial units each year with the right preparation.
This article provides general information only. For personalised guidance, regulated mortgage advice is required.
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Important information: Mortgage Bridge provides information only and acts as a mortgage introducer. We do not provide mortgage advice or make lender recommendations. We can introduce you to an FCA-regulated mortgage adviser who can provide personalised mortgage advice.