Supporting investment in turbulent times
Acquiring property for investment purposes is a well-trodden path that not only generates short-term rental yield but also offers potential long-term financial capital increases through sale or supporting further investment through equity release. The challenge clients and specifically IFAs and brokers are now navigating on behalf of their clients, is securing a mortgage to support these traditional BTL investments at palatable loan to values and indeed interest rates.
The interest rate news which was largely expected (albeit perhaps not the full level of increase) was published by the Bank of England (22nd June) with a 0.5% rise. Lifting Base Rate to a level not seen since before the Global Financial Crash in 2008. This is the 13th consecutive increase since December 2021 from 0.1%. The impact on mortgages has understandably been making headlines.
This is challenging for all parties and across all sectors, because when landlords have rising costs, it almost certainly impacts the tenants. An illustration of what this means in real terms was recently published in The Times:
- A two-year fix with 0% product fee and a 75% loan, will now cost you 6.79% up from 5.22%.
- This is an increase of £327 per month on a £250,000 interest only mortgage
Over the last 5 years or so, we have seen a continued trend of clients looking to make their money work harder for them, either through seeking a discounted purchase price on a new investment, adding value through refurbishment works or even converting property, buying higher yielding residential property (i.e. HMO, Student Lets, and Holiday Lets) and now buying alternative asset types, through mixed use and commercial schemes.
Where a client has a defined deposit amount, this may no longer support the purchase of same valued asset where borrowing is limited by the rental yield received against increased rates. As such, a higher yielding property may become more attractive as in some cases the buy-to-let transaction simply no longer allows clients to borrow at their desired levels.
One potential solution is semi-commercial property investment or commercial assets.
This combines commercial and residential yields allowing clients to potentially borrow more on rates not too dissimilar to that available across the specialist residential market place. As clients react to the challenging commercial climate, at Omega we’ve seen a huge uplift in demand for this type of property and debt available to support this investment class. This can comprise of many formats, but typically consists of a shop or commercial unit with one or more flats or residences above.
Lower stamp duty and higher yield
Unlike buy-to-let property, mixed-use property is not subject to the extra 3% stamp duty. Yields tend to be higher than residential property, typically sitting at 7.6% compared to say, 6% for some residential accommodation. At Omega we are to source a range of financial solutions that give the option of long-term interest-only payment plans or repayment finance, available to both seasoned commercial investors and those undertaking their first property investment.
Properties can include those with short commercial leases and even licences, residential units usually being self-contained; let on Assured Shorthold Tenancies, corporate lets and HMOs.
Offering commercial solutions
We want to help our clients, introducing partners, brokers and IFAs and can accommodate all applicant types including individuals either solely or in partnership – including UK and overseas residents – as well as limited companies, trusts (UK and offshore) and pension applications.
These are challenging times but there are financial solutions that can provide support for clients either refinancing existing assets or looking to buy new property investments.
Please contact one of the team today online or over the phone on 0333 6000 007