By Matthew Dilks, bridging and commercial specialist, Clever Lending
It has been a tough few years for buy-to-let (BTL) landlords with higher interest rates, tighter affordability and changes to the way BTL income is taxed eroding profit margins and reducing yields, forcing many to scale back on planned projects while others look to divest their stock.
The last 12 months in particular have been significantly challenging, with the effect of 14 consecutive base rate rises taking a toll, leaving many landlords with higher mortgage repayments and underperforming assets as they try to find ways to drive down costs and navigate the higher interest rate environment.
For investors and landlords looking to broaden the scope of their property portfolio in 2024, seeking out opportunities in the semi-commercial mortgage market could prove to be a fruitful way of maximising profit and diversifying their income stream by offering the potential to earn higher rental yields than standard BTL properties.
Semi-commercial properties are sometimes referred to as mixed use properties as they can include flats above shops, restaurants or offices; guest houses or B&Bs with living accommodation attached for the owners; pubs with self-contained accommodation upstairs; or buildings with both self-contained flats and offices.
One of the many benefits of the semi-commercial market is that it offers the perfect blend of both commercial and residential use, enabling landlords to earn revenue from two different asset classes within the same property.
This can be an attractive proposition in the current economic climate as it can help landlords mitigate the risk of an underperforming asset and enable them to make up any shortfall in rental yields with a mixed use property.
Another benefit is that the leases on commercial premises are often taken out for longer than those on residential properties which, in many cases, can range from between two to 25 years. This means landlords can be assured of a steady rental income stream from any commercial business that rents the property out over the term of the lease.
In some cases, this may also mean the property will require less maintenance and refurbishment as the tenant will be in the premises for a longer time than a standard residential tenant, and an update will not be needed as frequently. However, this is not always guaranteed and will obviously depend on the terms and conditions agreed in the rental lease.
Tapping into the semi-commercial market could also prove to be a useful stepping stone into the commercial property market further down the line, helping landlords and investors broaden the scope of their investment portfolios even further when they become more familiar with this area of the property market.
However, as with all types of property investment, there are some important considerations to take into account when deciding to purchase a semi-commercial property, such as the fact that the initial outlay is often higher than in residential purchases or that business rates will still be charged if the property is vacant.
Given the complexity of this area of the market coupled with the fact that not all lenders offer mortgages for this kind of investment, some brokers may find themselves in unfamiliar territory should they encounter a client looking to tap into this area of the mortgage market.
In cases such as these, referring your clients to a specialist master broker such as Clever Lending will not only ensure they receive the advice, support and outcome they need to diversify their portfolio, it will also enable you to focus on the more familiar areas of the business while earning a passive income for referring the client.