Changes to Stamp Duty
A stamp duty surcharge of three percentage points has been introduced for all second home and residential buy to let investments. Commercial and semi-commercial property is exempt, which means that there is an immediate cost saving when investing in commercial or semi-commercial property rather than a traditional residential buy to let purchase.
If a potential landlord was planning on buying a new investment property for £150,000 and they 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.
The ‘War on Landlords’
With the perceived ‘war on landlords’ beginning to affect sales of new buy to let 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 the month to month profitability of such property and long term, should interest rates increase, the pressure on net income could easily be too much, with many investment properties becoming loss makers.
Commercial & Semi-Commercial Investment Properties
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 two rent payments received each month can produce a yield far in excess of those available on your average buy to let investment.
Residential investment properties in London are producing a yield of around 3%, with commercial offering a significant increase at 6%. This sizeable jump in potential returns, along with the savings on acquisition costs and narrowing of finance rates between residential and commercial property is seeing a surge in the commercial investment market of experienced residential landlords looking to take on their first commercial or semi-commercial property.
How ABC Finance Ltd Can Help
It’s easy to see why investing in property is still likely to be an lucrative decision, but it may well be time to consider commercial and semi-commercial units.
Although the process of raising a commercial mortgage is slightly different and certain lenders are not quite so easily accessed, by talking to a commercial mortgage broker with access to the whole market and taking advice on what would be possible based on your circumstances, a lot of the hassle can be taken out of the process.