Landlords are shifting towards semi-commercial property as a 'sexy alternative' to traditional buy-to-let, according to mortgage brokers and property experts. The change follows the introduction of the Renters' Rights Act earlier this year, which has made residential property 'very unattractive' due to taxation and regulation.
Semi-commercial units offer several advantages: they can be more tax-efficient, provide greater security through longer leases, and often have lower acquisition costs because buyers benefit from commercial land transaction tax rates rather than higher residential rates and surcharges.
Expert views on the trend
Mark Alexander, founder of Norwich-based Property118.com, a news and community hub for landlords, said: "For many 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."
Ben Perks, managing director of Stourbridge-based Orchard Financial Advisers, noted that 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."
Growing interest from experienced landlords
Manooch Suree, director of Uxbridge-based Zinga Financial Services, agreed that interest was rising: "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."
Suree also noted that first-time investors still prefer standard buy-to-let, as it is simpler to understand, finance and manage. Semi-commercial lending is typically priced slightly higher, with lenders taking a more bespoke approach to underwriting.
Challenges and opportunities
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 explained: "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."
However, he warned: "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."
Darryl Dhoffer, founder of Bedford-based The Mortgage Geezer, acknowledged that while the Renters' Rights Act and residential headwinds are driving enquiries, most standard buy-to-let landlords are hesitating. He cited higher interest rates, stricter stress tests, and larger deposits as entry barriers, adding that managing commercial tenants is a different ball game.
Not a silver bullet
Stephen Perkins, managing director of Norwich-based Yellow Brick Mortgages, cautioned that semi-commercial property is not a silver bullet. He said: "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, observed that single-unit landlords are sticking to what they know, but portfolio builders are moving. He said: "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."
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."
