With the changes to stamp duty and tax allowances on buy-to-let properties, many landlords are looking to diversify their portfolios.
Some are putting their money into commercial property to avoid having to pay higher levels of tax, according to bridging finance lender, Roma Finance. Mixed-use property is not included in some of the tax increases which come into play from April. For instance, a landlord investing in a residential buy-to-let costing £500,000 would have to pay £30,000 in stamp duty, but a £500,000 commercial or semi-commercial property would incur stamp duty of £14,000. Another advantage is that mixed-use property can potentially provide multiple sources of income, such as a shop with flats above it or a pub with accommodation. They can get long tenancies for the commercial unit, whilst securing good rents from the flats.
Mixed-use properties are a good starting point for investors, as they provide a halfway house between commercial and residential investment. Commercial properties are also cheaper to buy. Although commercial properties are not rising in value as much as residential homes, the yields can be higher. Buyers can get as much as a 6% yield on a commercial unit in London, while the residential yield is 3%. Mortgages for Business research shows a fifth of investors are thinking about buying commercial property, which is more than double the interest shown six months ago. However, commercial mortgage rates are higher than ordinary buy-to-let mortgages and it can be more difficult to get an interest-only mortgage. These factors need to be taken into consideration when looking at commercial investments.
Landlords may also need to think again about investing in student accommodation, as there is a lot of uncertainly over the student rental market in the UK, according to StudentTenant.com. Last year, 120,000 students from other European countries studied for degrees at UK universities. However, Brexit and Britain’s desire to control its own borders could put an end to this. It is thought that students from outside the UK will need a visa to be able to study in Britain.
StudentTenant.com’s head of student property portal, Danielle Cullen, said EU students, landlords and universities are worried about how the changes will affect them. She believes this could lead to a significant decline in applications to UK universities from EU students, which could lead to fewer students and, therefore, a decrease in the demand for student accommodation.