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Investment decisions - mixed use, commercial property or buy to let?

Investment decisions - mixed use, commercial property or buy to let?

Different rates of stamp duty apply depending on whether you are purchasing residential, commercial or mixed use property but how does this tax influence your investment decisions? Andy Elley, expert commercial mortgage broker compares the options.

Stamp Duty Land Tax (SDLT) is a levy on the purchase of land and property in England, Wales and Norther Ireland. A similar levy called the Land and Buildings Transactions Tax is applicable in Scotland.

Since 1st April 2016, a stamp duty surcharge of 3% has applied on all purchases of additional residential property, i.e. on second homes and buy to let property. The higher rate, combined with other measures designed to curb the growth of buy to let, have certainly had an impact such that many BTL investors are now looking at mixed use and commercial properties as alternative investment avenues because they are not subject to the surcharge. In fact, non-residential rates of stamp duty apply. But how do the rates compare?

The examples in the following table demonstrate that the differential can be quite considerable:

Property Price

Residential SDLT inc 3% surcharge

Non-residential SDLT
(Commercial & mixed use)














The table clearly shows that SDLT on commercial and mixed-use properties can be at least 50% cheaper than on standard residential investment property – interesting reading I hear you all say! Whilst investing in property doesn’t hang on how much stamp duty you have to fork out, it can make a considerable difference to your up-front costs.

What is a mixed-use property?

As the name suggests, it’s property that has a mixture of both residential and commercial elements. These premises are also known as semi-commercial property. From a buy to let investor’s perspective, this often means buildings where there might be shops/offices on the ground floor and flats above. Because of the commercial element, these properties can’t be financed with a buy to let mortgage – a commercial mortgage is the way to go!

From a yield perspective, mixed used properties tend to be more attractive than vanilla buy to let properties. Our Buy to Let Mortgage Index shows that in Q2 2018 they generated gross yields of 7.8% (average) compared to vanilla BTL which has yields of 5.5%. 

As a BTL landlord, will you qualify for a commercial mortgage?

If you are an experienced residential landlord and have say, three or more buy to let properties or if you are high net worth individual with a high income and at least one rental investment property, there are lenders that can help with your commercial mortgage requirements.

Often these properties represent better value not just in terms of yield but also, they can be cheaper to buy but like all these things that depends on location, condition and use so do your research carefully.

Buying personally or in a limited company?

Currently the challenger banks have an appetite for commercial mortgages and semi-commercial mortgages and pricing is similar whether you are borrowing in your own name, an LLP, a partnership or property holding (SPV) Ltd company.

The debt serviceability of the mortgage will be calculated based on the yield and the lenders will employ commercial underwriting techniques. This means they will look:

  • Your background experience and character
  • Your assets vs liabilities
  • Profitability of the current portfolio
  • Your personal income vs expenditure.

Comparing commercial and residential property investments

As with all investments, it’s swings and roundabouts but it is worth comparing the costs and returns of commercial and residential property. Here’s a hypothetical (and very basic) scenario for properties in the South East based on a tracker mortgage rate where the investor borrows using a limited company.


Commercial/Mixed Use


Purchase price



Annual rent

£11,000 pa from shop
£11,000 pa 2 flats above shop

3-bed house let to a family

Stamp duty












Lender arrangement fee

1.5% of loan
(£2,812 added to the loan)

1.5% of loan
(£2,812 added to the loan)

Loan inc. arr fee



Mortgage rate

5.29% variable (LIBOR linked)

3.63% variable (LIBOR linked)

Monthly mortgage payment

£839 pcm

£576 pcm

Monthly rent

£1,833 pcm

£1,100 pcm

Net rent after mortgage

£994 pcm

£524 pcm

Annual gross yield




Although this example is quite crude, i.e. I haven’t included all of the transaction costs such as valuation, broker and legal fees, this scenario does demonstrate that with a mixed use property the initial costs are less by £8,000 and the monthly cash flow generated (net rental income after mortgage cost) is greater by £470 – that’s £5,640 every year.

Quite attractive isn’t it? Again, I would say, do your homework thoroughly and take professional tax advice but after you’ve done that, if you’re still interested in investing in semi-commercial or commercial property, do get in touch to talk through the mortgage options.

As always, I can be contacted directly on 01732 471644 or Alternatively call the main line 0345 345 6788 and ask for the commercial desk.