Increasingly buy-to-let landlords have been investing in commercial properties as opposed to residential dwellings and this trend is set to increase further as more changes to the buy-to-let tax rules are implemented.
From April 2017, mortgage interest tax relief is gradually being reduced and will eventually be replaced by a tax credit, capped at 20% in 2020. The changes will have an immediate effect on residential landlords especially, as mortgage interest can be the biggest financial cost that landlords face.
Nottingham is just one of the many cities to experience this spike in commercial property investment. Already with thriving independent scene, new research has shown that Nottingham has experienced a 12.5% increase in the number of bar and restaurants over the last three years, suggesting that more and more landlords are choosing commercial over residential; a trend which has been mirrored in other UK cities.
As more investors are turning to bars, restaurants, shops and even office space, commercial property is also proving to be popular because of the advantages it can offer. Although, residential landlords should expect their property value to increase, along with the rental income, a commercial return on investment will be higher from rent rates but price increases can be less reliable.
Commercial tenants are also more likely to incur some of the costs and responsibilities that a residential landlord would have otherwise had to deal with, such as insurance, repair costs to the building and business rates. Commercial leases are also likely to be longer, making it a more secure, stable and reliable income source for the landlord.
Since many of the tax changes are yet to apply to commercial lettings, it means that residential landlords are more than likely to venture out into the commercial property market, as a way of avoiding heavy tax and mortgage lending changes - making it the easier and favourable buy-to-let option.