Why does the pub next door make mortgaging your property tough?

Even though it’s a seller’s market there are properties that are available to buy - and sometimes they seem too good to be true.

A typical property is one that looks good from every angle but happens to be situated next to a commercial premises.

The first thing that is on the lender’s mind when reviewing a request for lending is ‘how can we get our money back if the buyer defaults?’  So they’re looking for problems and one of the problems that may raise its head is where the property is located.

If you’re not planning to live in the property yourself, but plan to let it out, you may think that being next door to a pub or a takeaway is a plus, but mortgage lenders don’t see it that way.  What they see are:

• Noisy, probably inebriated, people late at night.
• Lots of car doors slamming at late hours
• Lots of people passing your front door

Lender’s perception of the demand to live with all that going on will be diminished and thus make it tougher to get their money back. They believe many more people WON’T want to live next door to a busy place, because of noise, disturbance and potential litter. 

OF course, it depends on what the commercial property is.  If it’s a normal shop with 9 to 5 opening hours or an office building where people all go home at 5 or 6pm, there’s likely to be less of an issue. 

However, some lenders just don’t want to lend, they cut the problem off at the knees by refusing to lend on any property next to a commercial enterprise - regardless of the type of business.  Their rationale is that prevention is better than cure.

To you as an investor, that means reduced availability of mortgages - but not no availability.  Like anything else, where the options are limited, the cost is higher, so you can expect to pay a higher rate of interest.

The more anti-social the lender thinks the situation is, the harder it is to find a willing lender - and the higher the rate of interest is likely to be. 

Before you go in search of a specialist lender think carefully about whether it really is a good deal.  It may be that your tenants don’t want to live there, which results in higher tenant churn because they find once they live there don’t want the hassle - or find it’s not working for them.

It may be worth having a friendly chat with any other residents nearby to find out how much the commercial enterprise impacts the environment before you make your decision.

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