Planning your 2025 property investments? Here, we look at which property types will help you save money on Stamp Duty while boosting your portfolio profits.
The New Year has sparked many landlords to review their investment strategies for 2025 and onwards.
Our conversations focus on the following:
“I want to make my property business work harder for me!”
“I want to expand my portfolio, but I don’t know which route to go down!”
“What are your other clients investing in?”
The truth is that you love to know what other landlords are up to and take advantage of market trends and opportunities that will help boost your property portfolio profits.
What properties should I invest in?
We all know that property investment trends and phases change from year to year, from the ‘staycation’ craze caused by the pandemic, leading to a drastic jump in holiday let purchases, to higher-yielding properties such as HMOs and Multi-Unit Freehold Blocks (MUFBs) to navigate higher mortgage interest rates.
Commercial-to-residential conversions are one new property investment type that’s been at the forefront of many property investors' minds for a while. As both the Conservative and Labour governments continue to debate how to improve planning processes, our landlords are eagerly waiting to see if this is the new way to invest.
Commercial-to-residential conversions have so far been most popular among experienced developers, while smaller portfolio landlords with less building experience have focused on light refurbishment projects, such as residential conversions to HMOs.
However, following Rachel Reeves’ Autumn Statement and the shock Stamp Duty surcharge announcement, the decision on whether to purchase new buy to lets or commercial properties may have been decided for you.
A sector on the rise
Reeves increased the Stamp Duty Land Tax (SDLT) surcharge on second homes and residential investment property from 3% to 5%. This effectively penalised landlords, disincentivising property investors from providing the much-needed rental housing. Consequently, many of you are now questioning whether further investment is right for your portfolios.
In stark contrast, the buzzword among commercial lenders is that the sector is set to be busy in 2025. After what has been a challenging few years for many sectors following the pandemic, the industry leaders are unanimous in their confidence in commercial property investment.
Lenders are best able to judge the mood of the market due to the volume of applications or enquiries received, and they expect increases in commercial and semi-commercial asset values this year.
The savings on Stamp Duty
Given the Autumn Statement announcements, you’ll need to factor in increased Stamp Duty charges when looking at investment opportunities. Purchases of flats or houses in 2025 will come with much higher costs than you’re accustomed to, but you can save on your mortgage costs with a commercial investment.
Semi-commercial properties offer landlords plenty of benefits, such as higher rental yields than standard buy to lets. However, it’s now most attractive quality is that semi-commercial properties are exempt from the 5% SDLT surcharge, significantly reducing purchase costs.
Below is a comparison of SDLT on commercial property compared to buy to let purchases. If you’re considering the next steps for your property portfolio, this is well worth reviewing to drive your thought process of how to invest in 2025.
Stamp Duty on residential property purchases
For a property with a £300,000 purchase price, you will have to pay:
Stamp Duty costs up to 31st March 2025: £2,500
Unless you own another residential property, in which case you will pay £17,500
Stamp Duty costs from 1st April 2025: £5,000
Unless you own another residential property, in which case you will pay £20,000 (incl. 5% surcharge)
For a property with a £500,000 purchase price, you will have to pay:
Stamp Duty costs up to 31st March 2025: £12,500
Unless you own another residential property, in which case you will pay £37,500
Stamp Duty costs from 1st April 2025: £15,000
Unless you own another residential property, in which case you will pay £40,000 (incl. 5% surcharge)
Commercial property purchase for buy to let landlords
The SDLT payable on semi-commercial properties is significantly lower!
Example 1
A semi-commercial property purchase comprised of flats above a commercial unit at £300,000.
- Stamp duty costs: £4,500.
- How much you would save on Stamp Duty by purchasing the semi-commercial property instead of the buy to let in this example: £15,500.
Example 2
A semi-commercial property purchase comprised of flats above a commercial unit at £500,000.
- Stamp duty costs: £14,500.
- How much you would save on Stamp Duty by purchasing the semi-commercial property instead of the buy to let in this example: £25,500.
Getting started with semi-commercial property investment
If you’re just getting started with semi-commercial properties, our MFB commercial experts have 4 essential tips:
- Look for good-quality flats above commercial premises. A property in a good location will help attract tenants for the residential properties to help avoid rental void periods.
- Some lenders may not accept certain commercial sector properties, so it’s best to discuss your plans with our brokers first.
- Look for properties where the residential elements or the overall flat values make up over 55% of the overall semi-commercial valuation.
- Stick with properties with a minimum EPC rating of C. More lenders will be comfortable with this type of property, meaning you have more rate options to explore.
We have some really competitive rates available on semi-commercial properties, from 5.95% at 60% loan to value*.
Next Steps
Visit our page here to learn more about semi-commercial property investment. Alternatively, to discuss your next steps, call our experts on 0345 345 6788 or get in touch here.
*Rates as at January 2025 and are subject to change.
