Getting a mortgage on a property close to commercial premises
Buy-to-let property can be a great investment and a fantastic way of generating income and building wealth over time. When considering property for an investment there are several important factors to consider, one of which includes the location of the property, as this can be a key factor in determining whether or not a mortgage will be approved.
In this post, we explore the challenges of getting a mortgage on a property near commercial premises as well as the opportunities it can present, as well as the steps prospective investors can take to increase their chances of mortgaging a property near commercial units.
Why can’t I get a mortgage on a property near commercial premises?
When evaluating a buy-to-let mortgage application, the main worry a lender will have is the chance of the account going into default. They want to be sure that the property is a sound investment with great potential for generating income from rent, and that the mortgage will continue to be serviced on a monthly basis by the investor.
When it comes to property near commercial premises, lenders may worry about the impact that these nearby premises can have on the value and marketability of the subject property. They may be concerned that the commercial premises could create traffic, noise and general disturbances that make the subject property less attractive to prospective tenants. As well as this, commercial properties may be subject to certain restrictions that could limit the type of tenants that are allowed to occupy the subject property.
All of these factors will make it more difficult for prospective investors to get a mortgage on a flat near commercial premises. Certain mortgage lenders have more of an appetite for these kinds of properties and have varying tolerance depending on the type of commercial premises and the proximity. Although you may end up paying a higher rate than with a high street mortgage lender, you could snatch up property that other may have failed to obtain a mortgage on, as they haven’t employed the advice of an experienced mortgage adviser to help them with their purchase.
How to get a mortgage on a buy to let property near commercial units
Work with an experience mortgage broker
Working with a knowledgeable mortgage broker can be absolutely invaluable and can save you lots of time and money when helping you secure a mortgage. A mortgage adviser can help you navigate potential pitfalls with the application itself, find you the best products and offer tips on which lenders are more likely to be able to offer a mortgage on the property in question.
An experienced adviser will also help to speed up the application, as they will know in advance what documents and information the lender needs in order to approve your application.
Research the property in question
Before you make the decision to invest in a property, it’s essential that you understand what you are buying by viewing the property, asking all the questions you normally would when inspecting a potential investment property but making sure you understand the specifics of the commercial properties nearby.
Questions to consider when making the decision to buy a property
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- Are there any restrictions on the type of tenants you are allowed to have in the property?
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- What type of business occupies the units around the subject property?
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- Do those businesses have a good reputation?
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- How long has the business been operating?
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- Are there any planned changes or developments to the area that could impact the subject property?
In answering these questions, potential investors can gain a greater understanding of the risks and opportunities involved with the subject property and the commercial properties that surround it. These answers are vital when it comes to making decisions on whether to purchase the property in question.
Provide a strong rental income projection
Lenders will want to be confident that the property will bring in strong and consistent rental income. They will instruct a surveyor who will not only value the property itself, but will give an estimation of what they think the subject property will attract in rental income. They do this by taking account of factors such as the demand for property, rental market in the current area, amenities close by, the condition of the property and the energy performance rating.
Provide a strong financial picture
In addition to the lender looking at the property itself, they will also want to be sure that the person/company purchasing the property is able to service the mortgage should they have any void periods where a tenant is not occupying the property. Lenders will typically ask about the income of the applicant, the personal expenditure, details of any existing property portfolio and the credit history. Although not every lender will have an issue with previous credit problems, prospective investors stand the best chance of being approved if they have a squeaky clean credit file. Certain lenders may also impose a minimum income level, which may exclude some prospective investors from applying. Investors can improve their chances by working with an experienced mortgage broker who will be able to check multiple lenders criteria and search potentially hundreds of products on your behalf.
Consider alternative options
Depending on the specifics of the subject property, it may prove difficult to secure a traditional buy-to-let mortgage on a property located near commercial premises. In these situations, prospective investors may have to look at other options such as bridging finance or a commercial mortgage. An experienced adviser will be able to tell you when this is the case.
Bridging finance is short term finance that can be used to purchase a property to carry out necessary changes which may be preventing you from obtaining finance with other lenders. This type of finance is generally taken over 3-24 months and is more expensive than traditional mortgages.
Commercial mortgages are designed for properties that are used for business purposes. Investors may have to apply for this kind of finance if the property has an aspect of commercial usage attached to the title itself, for example a flat above a takeaway. In this instance the applicant would be purchasing both the takeaway and the flat above it which would not be suitable for a standard buy-to-let mortgage.
These alternative financing methods will generally attract higher rates and larger arrangement fees than more traditional alternatives, however they can prove to be a useful solution for prospective landlords when trying to obtain a mortgage on property next to commercial premises.
Conclusion
Getting a mortgage on a house near commercial properties can prove to be challenging, however it is certainly not impossible. Working with an experienced broker, conducting your own extensive research, having a strong financial profile and considering other financing options where necessary can increase an investor’s chances of securing a mortgage.
In comparison with more traditional buy-to-let properties it will take some more time and effort to obtain the finance, however the benefits of investing in this kind of property can outweigh the negatives . In having the right approach and the right financing, investors can generate a steady stream of income and build their wealth, snatching up an opportunity that others may have missed or failed to have secured the mortgage themselves.