The additional 3% stamp duty for residential property, on top of the normal amount, can be punitive – especially where more expensive properties are concerned. In some cases a landlord can be paying up to 12% more for a residential property just under the £500,000 barrier. This can greatly inhibit their yields and this is before the new tax rules are brought into account.
This is not the case with either commercial or a semi-commercial property however, there is no additional stamp duty here, so it is understandable that landlords who would never previously have considered commercial are now doing so. In particular we have seen a swing towards semi-commercial properties, for example a shop or a pub with residential elements above. These are quite appealing to investors used to residential buy-to-let, as it still includes that element of residential. Because the investor is escaping both the stamp duty and the incoming tax changes the returns can also be a lot better.
New investors coming into commercial find there can also be other benefits of commercial buy-to-let: the tenancy agreements can be much longer for example, often ten years long which can provide a surety of income that you don’t get with a 6 month residential tenancy agreement.
However it is not something to move into without research as there are also risks around commercial property that need to be considered: while the contracts may be long they will usually also include break clauses at set times, when the tenant can leave with relatively short notice. There will also be a number of other differences that a landlord will need to take into account that will not have been the case with their residential properties.
Perhaps due to the growing demand for commercial property there are also a growing number of finance options both for traditional and commercial buy-to-let. We have seen a particular increase in demand for bridging loans to enable an investor to acquire property suitable for semi-commercial and carry out any refurbishments needed to maximise the residential element, before putting a longer term loan in place for a lower amount. This is increasingly enables someone to snap up a property when they first see it and maximise both their opportunities and profit.
