Commercial mortgage finance for landlords buying semi-commercial property

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Due to rising costs, many landlords are looking at diversifying their property portfolio by investing in commercial and semi-commercial property. Semi-commercial property is mixed use property that has a commercial space as well as residential accommodation.

There are advantages to investing in this sector of the property market using a commercial mortgage.

Stamp duty

In 2017, the government raised the stamp duty on second homes and residential investment properties to 3%. This increase did not apply to commercial and semi-commercial property.

Semi-commercial property is mixed use property where a portion of the building is used for commercial purposes and a portion for residential use. These include shops with flats above them, pubs and hotels. Though part of the building is residential investment property the whole property is not subject to the extra 3%.

Changes to mortgage tax relief

Landlords can claim tax relief on mortgage interest payments. This tax relief is being phased out by 2020. The tax changes do not apply to commercial property but for semi-commercial property, the commercial mortgage interest payments on the residential portion of the building are subject to the cuts in tax relief.

It is not always clear about what percentage of the property is residential and subject to different tax regulations. Professional advice may be needed to make sure a landlord is paying the correct tax. HM Revenue and Customs may also help.

Split income

When calculating the value of a semi-commercial investment, there are often two incomes to consider, one from the commercial one and the other from the residential tenant. For some mixed-use properties such as pubs and hotels, the same tenant could be using both the commercial and the residential portion of the building.

There will often be different lease time periods. Commercial tenants tend to sign longer leases than residential ones, which means that there is more likelihood of there being more vacant periods in the residential portion compared to the commercial one. On the other hand, when a commercial tenant leaves, it can take longer to find another tenant than a residential one.

All these factors need to be considered when forecasting likely income and expenses on the investor’s business plan.

Applying for a mortgage for semi-commercial property

A commercial mortgage can be used to purchase semi-commercial property. Typically, a landlord will need a 25% deposit on a 75% loan-to-value mortgage. If other property on a landlord’s portfolio is used for additional security, some lenders will consider a higher loan-to-value rate.

Commercial mortgage interest rates are low, but are generally higher than residential mortgages rates. An adverse credit history does not necessarily mean that a commercial mortgage application will be turned down.

If you are looking to invest in semi-commercial property, get in touch with Ascot Mortgages, as we can answer all your questions about this sector of the property market. If you want to go ahead with purchasing semi-commercial property, we can find the best commercial mortgage deals to finance your property investment.

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