Buy-to-let landlords have faced a combined challenge over the last two years. This has come in the form of the raised stamp duty sur-charge on second residential properties, introduced in 2016, and the tapered reduction of mortgage interest tax relief brought by Section 24 in 2017.
These changes, along with high property prices and rising interest rates, have led some to look at the profitability of their buy-to-let property. But for buy-to-let landlords with a strategic, long-term approach plenty of opportunities remain such as semi-commercial investments.
Investment in semi-commercial has many of the characteristics of a typical buy-to-let investment, and as lenders become more comfortable with this asset class the products available have also become similar to standard buy-to-let products. Landlords in the current market considering switching strategy are looking at semi-commercial properties in greater numbers. Semi-commercial property is a great way for landlords to aim to maximise profits and offers a way forward in this environment.
It is an especially attractive proposition considering that semi-commercial property (along with commercial property) is not subject to the raised stamp duty charges. Similarly, the tax burden is eased as the commercial part of the property is exempt from Section 24’s deduction on mortgage tax relief.
Landlords operating in this area can look to benefit from multiple income streams with the potential for successful semi-commercial investments to be lucrative. A further degree of security comes from how the commercial element can help to cover any rental voids as tenants move in and out of the residential part of the property, as commercial leases are typically for longer periods between 3 and 10 years.
The commercial aspect itself also offers plenty of scope. Landlords can give plans careful consideration at the point when a company moves on from its tenancy and other firms are entering an area or already meeting a given level of demand. The right business tenant, in the right location, can boost the long-term rental prospects of a semi-commercial investment.
There are also opportunities offered by permitted development rights. This allows landlords to take the commercial part of their investment back to residential usage without having to follow full planning permissions. For landlords investing in semi-commercial in secondary and tertiary locations, the ability to exercise this right creates further potential.
As with most aspects of buy-to-let, moving from residential to semi-commercial is not going to be a seamless transition. Residential buy-to-let landlords taking this route have to be sure they’re comfortable with semi-commercial as an asset class.
Taking advice on planned investments is imperative while having insight into commercial requirements is essential. Varying classifications on property usage, along with commercial regulations, including health and safety, will all form part of the decision making. Ultimately, it’s important not to underestimate some of the differences with semi-commercial – an area of buy-to-let that is very much its own specialism.
But with buy-to-let lenders reporting an increase in transactions of this type, it’s clear that many landlords are keen to take on semi-commercial. However, most of those lenders will continue to focus on established buy-to-let landlords as they switch strategies.
At Octopus Property our policies allow us to consider all applicant types, with flexibility and accessibility running through our specialist range. In particular our recently amended criteria has resulted in us being able to move from a maximum loan to value (LTV) of 65%, to considering applications with a maximum LTV of 75%.
We’re here to support brokers and the many different types of buy-to-let landlords with fast and flexible finance. That includes those moving into semi-commercial property investment.
