Buy To Let

• Posted onFebruary 12, 2017

From 1 April 2016, anyone buying residential property in addition to their main home became subject to a 3% increase in the Stamp Duty Land Tax (SDLT) that would previously have been payable on the transaction in an attempt by the then Chancellor George Osbourne to make home ownership easier for younger buyers by deterring landlords from acquiring small homes.

In addition, from 6 April 2017 individual landlords with residential properties will no longer be able to deduct all of their finance costs from their property income to arrive at their property profits. They will instead receive a phased basic rate reduction of 25% each year until 2020/21 from their income tax liability.

These new rules have led to an increasing number of investors turning away from the residential market in favour of commercial properties such as small shops or parades. As commercial properties are not subject to the tax changes even if they have flats attached, many landlords more familiar with residential property have opted for mixed-use properties such as shops, restaurants or offices with flats above them as a middle-ground. For example a buyer of a £250,000 buy-to-let residential property would pay £10,000 SDLT, but a buyer of a mixed-use property at the same value would pay just £2,000. Mixed-use properties can also see better returns than residential alone. Typically investors can see yields of around 5% on residential property but this rises to around 6.5% for mixed-use properties, and could increase still further when the full effects of the loss of relief are felt in 2020/21.

Individuals who buy a commercial property are likely to need a commercial mortgage, and one consideration that may have put off potential investors in the past is the typically higher interest rate. However, commercial buy-to-let mortgages are likely to become more competitive as more landlords move into the sector.

Another positive effect of the trend may be the regeneration of decaying commercial areas and shopping parades as more landlords are encouraged back into shops and Britain may well be heading back towards being a nation of shopkeepers (or at least shop owners).

 

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