Liz Syms

The benefits of semi-commercial property loans




Serious property investors are business people, just like us, and look to find ways to continue to run their businesses profitably, even when much appears to be stacked against them.

One area we are seeing many investors consider is semi-commercial or mixed-use property. A typical mixed-use property will consist of a shop or office with a flat above that can be let out on a BTL basis. Both elements are on one legal freehold title.

A property investor can acquire the property and let out both the shop and the flat on separate agreements to generate rental income. But what is the advantage over standard BTL?

One big advantage is stamp duty. Part of the property is a BTL, and if this were a standalone property with its own title, the purchase would attract the additional 3% second property stamp duty. However, because of the commercial element to the legal title, the property would be classed as mixed-use for stamp duty purposes. This has a staggering effect on the cost. A £200,000 BTL purchase would attract £7,500 of stamp duty, whereas a mixed-use property just £1,000. Even for higher property values, the difference is big. A £500,000 BTL purchase would be £30,000 and just £14,500 as a mixed-use property.

In addition to this, commercial property is not affected by the mortgage interest tax relief changes. The loan apportioned to the commercial element of the property can still offset its interest payments against rent before paying tax, even if the property is held in a personal name.

With these financial advantages, it is no wonder these property types are looking attractive to investors, however, are the lenders keeping up with the demand?

It is fair to say that in the specialist BTL lending market very few lenders offer semi-commercial mortgages, which is potentially a lost opportunity. Some BTL lenders do have a partial offering, but with strict criteria relating to the commercial element. 

Specialist BTL lenders tend to shy away from this part of the market, usually because of a lack of experience in relation to the commercial element. The best way, therefore, to help your clients fund these types of properties is via the commercial lending market. 

Commercial lenders have both the lending experience for commercial property, but also offer complex BTL. Very often the rates for semi-commercial will be less than for fully commercial property. 

These types of products are often bespoke and strong presentation of your client’s circumstances to a commercial lender is key to success. Advisers unfamiliar with the commercial market may want to consider partnering with a broker or packager knowledgeable in this market so that they are able to assist their clients who are considering these property types.

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