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The growing popularity of semi-commercial

If the opinion polls are to be believed, and let’s face it, they’ve barely changed over the past 12 months, then what could possibly turn out to be the last Budget by a Conservative government for many years really did very little for buy-to-let landlords.

While Jeremy Hunt announced in the recent Budget that Capital Gains Tax (CGT) will be reduced from 28% to 24% for higher or additional rate taxpayers selling a residential property – aiding certain landlords looking to exit the market – this needs to be weighed up against the decrease on 1 January next year from £6,000 to £3,000 in the tax-free allowance for CGT. Ultimately, it seems as though helping landlords is not seen as politically beneficial by any major party with a general election less than a year away at most and which could possibly take place in just a handful of months.

Showing resolve

In the meantime, and despite a tough operating environment, landlords and property investors are in the main staying put and keeping hold of their investments; recent surveys indicate that many in fact are looking to increase their portfolios over the short to medium term. For example, the Intermediary Mortgage Lenders’ Association (IMLA) has reported that over half (53%) of landlords with mortgages are looking to buy more rental property over the next five years, as do 25% of unmortgaged investors, compared to just 21% and 17% respectively who are planning on selling up instead.

That doesn’t mean that they are planning on buying properties that mirror their existing assets, but rather are looking to investments that will produce higher yields, such as semi-commercial properties. These appeal to investors who have previously operated solely in the residential private rented sector because semi-commercial is, by definition, a mixture of residential and commercial, and therefore such a landlord would not be moving completely out of their wheelhouse. Semi-commercial also allows the investor to spread their exposure across two sectors, as well as making it less likely that both elements will be vacant at the same time, thus minimising void periods when compared to a purely residential investment.

The bridging benefits

 

At London Credit, we have witnessed and continue to see this growing trend of traditional buy-to-let investors diversifying into semi-commercial, despite not being a buy-to-let mortgage provider but rather a short-term lender. This is because bridging finance is a very useful tool for landlords and property investors looking to purchase semi-commercial properties. For example, it can provide an opportunity to buy a property at speed or perhaps secure an investment opportunity ahead of acquiring planning permission.

Another factor for landlords looking to make the most of semi-commercial investment opportunities that may come their way is that short-term finance may well be a preferable form of funding in the current interest rate environment. The Bank of England’s Monetary Policy Committee (MPC) has held the Bank Rate for five consecutive months now and market expectations are that rates will go down this year (although ‘when’ is the question). That’s why we’re seeing those who believe that the pricing (in the form of both rate and fee) of buy-to-let term mortgages may come down in the coming months and accordingly are using bridging finance in the short term.

Brokers with clients looking for higher-yielding assets investments should talk to those bridging lenders who operate in the semi-commercial space. They will be able to guide them and their clients through the process – which isn’t radically different to residential bridging – and help those property investors who are looking for opportunities to increase the sizes of their portfolios now and over the coming months.

Neil Patel, Business Development Manager at London Credit

The growing popularity of semi-commercial
3 April 2024

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