The surge in semi-commercial enquiries and why it could be due to a tax loophole.

A respite from the tax rise
Despite the government’s recent 3% stamp duty surcharge on all second homes and buy-to-lets, mixed-use properties which consist of a combination of residential and commercial elements will not attract the higher fee. Therefore, the development of old commercial buildings into residential properties is likely to appeal to a significant number of investors. In fact, it is no surprise that we are already seeing an uptick in semi-commercial deals and enquiries as more and more investors are lured towards this type of development.

These mixed-use properties are usually retail units with self-contained living areas above, but they can also include pubs, restaurants, takeaways and offices with flats directly above them. Generally speaking, lenders will have slightly different attitudes towards lending against certain commercial properties because of their impact on the marketability of the property itself, and their decision often largely depends on the type of commercial property in question. For example, properties that are next to or near food outlets are less attractive to certain lenders because it can sometimes make the property less attractive to subsequent purchasers. However, in most circumstances, we can still find funders for these transactions.

A growing confusion
When purchasing a semi-commercial property, some borrowers may be under the impression that they are still required to pay the 3% increase and, as a result, there is a growing concern that some are unknowingly paying more tax than is necessary.

To clarify, existing property owners are exempt if they are purchasing a main residence that is neither a second home nor an investment property, and must have previously owned another main residence that was sold before 26 November 2015. These people have until 26 November 2018 to buy another home, without having to pay the 3% levy. In addition, those who sold a home before November 2015 and do not own their own home, but own part of a property which is lived in by family members, are also excused.

Attractive yields
Yields for semi-commercial properties which rose in Q1 this year make it the second highest yielding property type. It is clear that stamp duty implications have become a crucial factor, particularly for buy-to-let landlords. At the bare minimum, I would expect to see more and more investors looking at the possibilities of semi-commercial properties and, although it is certainly not without risks, it is likely that many will start to see this as a worthwhile investment.

Robert Collins is Brightstar’s director of commercial and development finance