A stamp duty surcharge of three percentage points has been introduced for all second home and residential buy to let (BTL) investments. Commercial and semi-commercial property is exempt however, which means that there is an immediate cost saving when investing in commercial or semi-commercial property rather than a traditional residential BTL purchase.
Example: a potential landlord was planning to buy an investment property for £150,000, if he chose a residential investment the stamp duty bill would be £5,000 compared to £0 on a commercial investment. If the purchase price was £500,000, the stamp duty would be £30,000 for the residential property vs £14,000 for the commercial, an additional £16,000.
Returns across all UK property actually fell by 1.1% in December, followed by a further decrease of 0.7% in January. This trend was bucked in the commercial property sector, which saw steady growth of 0.1% in January, with Industrial property coming in far above the UK property average with 0.3% growth, according to research held by CBRE.
With the perceived ‘war on landlords’ beginning to affect sales of new BTL property, with sales beginning to decline and net yields being pushed down further due to the changing tax rules, the market is beginning to look far less attractive. The new tax rules, which prevent a residential landlord from offsetting their mortgage interest against the rental income for tax purposes, has really begun to affect month to month profitability. Looking long term, should interest rates rise, many investment properties could become monthly loss makers.
Commercial investment properties can have excellent yields, multi-year and even fully repairing leases, meaning you know for sure your tenant will remain in the property and handle any required maintenance as part of his occupation of the property – something landlords of residential properties can only dream of!
Semi-commercial property for investment, such as a shop with a flat above can provide even more benefits, with a long term tenant downstairs in the commercial element and a residential tenant above. This gives you some protection in the event of one part of the property becoming vacant, as chances of having at least one tenant and therefore an income stream are increased. On top of this, when both units are occupied, the benefit of 2 rent payments received each month can produce a yield far in excess of those available on your average residential investment. On top of this, as more and more commercial mortgage products are being offered, options such as interest only and longer terms are now becoming available.
According to an excellent article on the subject by The Telegraph, residential investment properties in London are producing a yield of around 3%, with commercial investment property offering 6%, a significant increase! This sizeable jump in potential returns, along with the savings on acquisition costs and narrowing of finance rates between residential and commercial mortgages is seeing a surge of residential landlords looking to take on their first commercial investment.
With all of the above taken into account, it’s easy to see why property investment is still likely to be an excellent investment, but it may well be time to consider commercial property. Although the process of raising a commercial mortgage is slightly different and can seem unnerving, we at ABC Finance Ltd will not only place you with the right lender to meet your needs but also guide you through the whole process from start to finish. We have access to the whole market so there is virtually a perfect commercial property mortgage for everybody.
To speak to one of our commercial mortgage experts, call us on 01922 620008 or complete our enquiry form.