Sam Dunn: 'Should we buy a flat above a shop?'

House Doctor
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The Independent Online

Question: My sister and I have found a really spacious two-bed flat with room for an office and living room at a very decent £190,000 in central Manchester. However, it's directly above a hardware store on a parade of shops including two fast-food outlets (one right next door to the DIY shop). Will we struggle to get a loan, and will it be a very difficult sell when we eventually move on in a few years? Living above shops seems still to have a stigma attached. L S, Bury

Answer: A late-night kebab, especially with lashings of extra chilli sauce, is heaven for many after a good night out. It can be hell, however, if the fast-food vendor is in the street beneath your home, with all its attendant ills: lingering smells, pungent heat and rowdy customer disturbances in the small hours.

Life above a commercial premises can come with a cheap price tag, as you've found, but lenders have always been very wary of offering mortgages – and even more so in today's tough credit climate – when there's a high social price to be paid.

"The problem is that shops such as fast food, DVD rentals and some corner shops open at unsociable hours; attract noise; and generate smells, which makes lenders loathe to lend on such properties," stresses Andy Montlake at broker Coreco.

"Because of this anti-social element, lenders' major issue is that these properties are more difficult to resell and, in a declining market, tend to lose their value quicker, especially if the buyer has a small deposit and a high loan-to-value."

Whether you'll struggle to secure a loan depends on the property's capacity to be marketed easily in the future, says Richard Morea at broker London & Country.

"Lenders are always guided by the surveyors' comments: not only to the condition and value of the property, but also to the marketability," he adds.

And with limited marketability down to its position above shops, "the lender may restrict the amount of the purchase price they will lend, or even decline to lend at all."

You've plenty of research to do too: check to see if the shop owner is the freeholder as a future planning application or change in the use of the premises could be a further hindrance.

Mortgage lenders weigh up three types of retail premises: category "A1" means retailers like newsagents and clothes shops; "A2" denotes professional services like dentists, banks or lawyers; and "A3" – the hot one for lenders – covers restaurants, takeaways and pubs.

Although your position directly above a hardware store will help, its neighbouring fast-food joint could be troublesome.

Don't despair, though: living above a shop has its advantages and can particularly suit certain types of buyers, estate agents point out, which will help you with lenders.

First, you may be moving to a snazzy, desirable area where proximity to local amenities makes it attractive to young buyers who are not put off by such the social drawbacks and who – like you – don't intend to live there forever.

Second, such properties can also be very good rental investments for tenants looking for competitively-priced property including students and young professionals: so you could, when you move later in life, consider renting it out.

As for your possible mortgage, adds Morea, many lenders such as Abbey, Woolwich, Halifax and NatWest will likely lend in your situation. "However, they will be guided by the surveyor on whether the property offers suitable security" he says.