The Renters’ Rights Act came in earlier this year
Landlords are making changes after a new law came into force this year.
Mortgage brokers and property experts have said semi-commercial property is becoming “a sexy alternative” to traditional buy-to-let for a growing number of landlords, as residential property has become “very unattractive” due to taxation and the Renters’ Rights Act. They say semi-commercial units can be more tax-efficient, offer greater security through longer leases and carry potentially lower acquisition costs, as purchasers benefit from commercial land transaction tax rates rather than the often much higher residential rates and surcharges.
“For many landlords,” said Mark Alexander, founder of Norwich-based Property118.com, a news and community hub for landlords, “the biggest challenge today is not simply improving rental yields but finding investments that still produce attractive returns whilst making commercial sense in an increasingly demanding regulatory and tax environment”.
The result is that a growing number of landlords are now looking to diversify into semi-commercial units. Ben Perks, managing director of Stourbridge-based Orchard Financial Advisers, said legislation and taxation had become a major issue for everyday landlords.
He added: “The government has made residential buy-to-let very unattractive and now a sexy alternative is gaining attention. Semi-commercial and commercial property can be more tax-efficient and protections and regulations can favour a reasonable landlord more than the tenant, which is a refreshing change from the residential space. We’ve seen an increase in enquiries and this will likely grow, as the commercial property market is buoyant.”
Manooch Suree, director of Uxbridge-based Zinga Financial Services, agreed that interest was on the up: “We’re definitely seeing more interest in semi-commercial properties, but mainly from experienced landlords rather than first-time investors. Landlords who already own buy-to-lets are increasingly looking at mixed-use properties for stronger yields, diversified income and longer commercial leases as they reassess their portfolios.
“Of course, for clients buying their first investment property, a standard buy-to-let is still usually the preferred option. They generally find it simpler to understand, finance and manage, whereas semi-commercial properties can feel more complex.
“From a mortgage perspective, semi-commercial lending is typically priced slightly higher than standard buy-to-let, with lenders taking a more bespoke approach to underwriting. For the right investor, semi-commercial can be an excellent addition to a portfolio, but it’s best suited to those with some buy-to-let experience.”
Rohit Kohli, director of Romsey-based The Mortgage Stop, said “more landlords are looking at commercial and semi-commercial as the traditional buy-to-let model gets squeezed”.
He continued: “The pull is obvious: tax-efficient ownership structures, tenants picking up more of the repair and maintenance burden and commercial mortgage rates that stack up well against the rents these properties can achieve.
“The catch? Lenders don’t care that you’ve been a landlord for 20 years. Commercial finance means thinking like a business owner, not a landlord.
“They’ll dig into the deal, your experience, your plan and the risk in far more depth than any residential buy-to-let application. Plenty of landlords aren’t ready for that shift. But those who do get it right seem to be picking up some good deals.”
Justin Moy, managing director of Chelmsford-based EHF Mortgages, said: “As the government continues to target landlords with more legislation and taxation woes, the more experienced are definitely looking into different markets such as semi-commercial. There’s less aggravation, often better yields and lower stamp duty is an attractive proposition.
“On top of that, more mortgage lenders are now supporting this market, with rates similar to those looking at HMO (House in Multiple Occupation) funding. What was more the tradition for investors has come full circle, as residential investment does look rather unattractive.”
Darryl Dhoffer, founder of Bedford-based The Mortgage Geezer, said that “while the Renters’ Rights Act and residential headwinds are driving enquiries, most standard buy-to-let landlords are hesitating to make the leap”.
The reason? He said: “The entry barriers are that commercial mortgages carry higher interest rates, stricter stress tests and require larger deposits. Plus, managing commercial tenants is a whole different ball game. For now, the investors I’m talking to are dipping a toe in to explore lower tax rates and longer leases, but widespread proactive buying remains limited.”
Stephen Perkins, managing director of Norwich-based Yellow Brick Mortgages, said that while “some landlords are looking more closely at semi-commercial property, it isn’t a silver bullet”.
He added: “Diversified income and stronger cashflow can be attractive, but the finance is more specialist and often more expensive than a standard buy-to-let mortgage. The best investors choose semi-commercial because it suits their long-term strategy, not simply to escape the pressures facing residential buy-to-let.”
Thomas George, director of Mansell McTaggart, an estate agent covering Sussex, said “single-unit landlords aren’t going anywhere” and are sticking to what they know.
He added: “It’s the portfolio builders who’ve caught my attention. The ones who’ve always treated property like a business, who talk about yield and structure before they’ve even seen the front door. They’re not sitting around complaining. They’re moving.
“And where are they moving? Commercial keeps coming up. The tax efficiency, longer leases, the fact that tenant responsibility is greater, it all stacks up when you’re running property as a serious investment strategy rather than a pension top-up.
“It’s not simple. The finance is more demanding and the management is a different skill set entirely. But landlords who’ve spent years building their portfolio? They’re ready for that conversation and are having it.”
Property118’s Mark Alexander added: “Semi-commercial investments are not suitable for everyone. They require careful due diligence, different lending criteria and an understanding of both commercial and residential tenancy arrangements.
“On the other hand, many experienced landlords find they can offer attractive cashflow, longer commercial leases, diversified income streams and, in some cases, significantly lower acquisition costs. As increasing numbers of investors reassess the future direction of their portfolios, mixed-use property is likely to become an increasingly important part of the conversation.”
