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Many have seen their profits squeezed or completely wiped out from the introduction of the recent tax relief. Mortgage brokers are increasingly referring clients to commercial buy to let options as a viable alternative to traditional residential lettings. This is due simply to the fact that rents on commercial spaces tend to be higher giving landlords a better yield on their investment. It’s a different game all together though, with risks a plenty. With many exploring commercial property mortgage options and running a commercial property portfolio, it’s good to know what to consider before making the leap. What is the difference between buy to let and commercial mortgages ? When you think of buy to let you probably think of the traditional private landlord renting their property to private tenants. This can be just someone who needs somewhere to live. The mortgage finance will calculate the value of the property and its potential rental income. This will decide your mortgage payments. You may have heard of ‘complex buy to let’. This covers anything form large apartment complexes to several housing units that could be rented out to multiple families. This also encompasses HMO’s, Houses in multiple occupation. This would typically be student accommodation where they have lockable rooms within the same property. The mortgage finance structure here is usually more complicated and will most of the time be arranged through a limited company. Semi Commercial Property is another variation. Usually this refers to a building with a shop or restaurant in another part of the building, then residential accommodation in another part. Private landlords will usually rent this out a business that conducts commercial activity on the premises. The value of the property and the rental incomes from it calculate how much a semi commercial mortgage will cost. Also what business is in the property. These requirements decide how likely it is that a landlord will be able to secure the mortgage finance. They are just subject to a different type of scrutiny than traditional mortgages. The UK commercial property market in a nutshell! If you go off the latest figures from the Royal Institution of Chartered Surveyors, the suggestion is that the UK commercial property mortgage market is in reasonable good shape. Industrial space is beating both office and retail in terms of growth. For Q1 of 2017 the RICS Market Survey shows that investor interest is also up across all the sectors. This translates to a 18% increase in those receiving enquiries for investment. This includes demand from overseas. Again, during Q1 the main emphasis was on industrial space. Industry as a sector of the economy also did well in terms of capital value. Over 44% of respondents here predict price rises over the next several months. The highest confidence level since the end of 2015. How will Brexit effect commercial property ? It’s thought that the growing dis-ease around the UK decision to exit Europe may have caused some investors to rethink the value of acquisitions being targeted in the UK. This slowdown however has resulted in some assets being priced on the market with Brexit factored in. This played an important role in the strong results that were seen during the last quarter of 2016. This was the fastest quarter on quarter growth for investment in three years. Most of it from overseas, a total of £24 billion for the year 2016. This was just under half of all investment. In addition, the relatively weak pound against the dollar and euro has also made the UK property market look very attractive heading into 2017. It mainly consisted of large office and retail sites in the major UK cities. Demand for these assets has remained high into 2017. Overall we see positive signals when looking at how these investments performed. The only caveat was that in June when Britain voted for Brexit retail investors scaled back these property funds to the tune of £1.4 billion. About 6% of the sectors total £23.3 billion in assets. Most commercial property mortgages are accounted for by the smaller market of shop sites, takeaways and independent eateries. The most recent figures suggest that £5.2 billion was underwritten for the end of year June 2016. Demand has been growing though for these kind of property investments. An increase of 55% said the NACFB. This was the strongest growth area second only to short term bridging finance and bridging loans. Should I invest in Buy-to-let ? Before you decide, it would be good judgement to speak to a professional who can help you understand the risks and commitments involved. It’s not a guaranteed way to make money and is by no means straightforward. However, there are many opportunities at the moment and for many experienced buy-to-let landlord’s commercial property mortgage options are becoming a popular choice. Nigel Whitfield says “Since the government has introduced the wave of fiscal and regulatory changes to buy-to-let we have witnessed a noticeable increase in the number of landlords who see commercial property investment as a viable option.” He adds “Those looking for higher yields and better return on investment are often drawn towards semi-commercial properties. There’s no stamp duty surcharge and often not the additional affordability scrutiny that comes with a personal buy-to-let mortgage.” What is a semi-commercial property ? These are sometimes called mixed properties and consist of both commercial and residential components. One of the most common examples is a shop that has offices or apartments above it. Research suggest that over the past six years’ semi-commercial properties produced a gross yield of 7.6% per annum. This is compared to 6% for a traditional buy to let investment. The key thing to remember is that buy to let mortgages do not apply to semi-commercial real estate. Investors need to look at commercial finance to fund this. This can be tricky though as the main banks will offer the most attractive rates here but will often insist the borrower has previous commercial experience and a proven track record. It’s also worth noting that the tenant plays an important role too in that the lender will often want to see the tenancy duration mirror that of the mortgage term. This can vary considerable. Getting a commercial property mortgage the right way! For any investor looking to make the change from residential property to commercial, or a mix of both. Sound guidance and advice is key to get the deal over the line with the correct terms and desired funding. Short Form Consultants work with brokers and lenders to guide you through the commercial property mortgage process. This is not something the high-street banks have a good reputation for. The trick can often be in knowing which lender you need to approach. Most alternative lenders can only be approached through a commercial mortgage broker as a sort of quality control measure. Each lender has its own niche and preferences to who they work with. Some will offer the rates depending on yield. Lower yield means better rates, tenants here are often viewed as being well established businesses on long term lease agreements. Thus, less likely to default. In addition, many will offer an interest only period as well as considering shorter lease agreements. All lenders will mostly opt for those with a good track record in business and their trading operations. They tend to be less interested in businesses that rely heavily on the quality of the operator and where failure rates are already high. Like the pub and restaurant trade.

If you’re anything like most SME owners, you’ve probably lost sleep over at least one of these scenarios: Cashflow problems, not having enough cash in your business to function smoothly. Not knowing how to grow your business or how to fund the expansion. Needing funds to invest on updating your equipment and technology. Pulling your hair out due to late payments or bad debt from customers. Your slow season is getting longer and busy season shorter leaving a massive cash gap. These are valid worries. Cash can disappear and be agonizingly slow to come in, and sometimes a loan feels like the best option to help you through those times….. is it though? BBX is a global business community and its suppliers are given access to a unique interest free line of credit (up to £100k) which can be spend on goods and services within the community and paid back with new customers we bring you. For more information contact us on 0333 400 2014 or visit our website https://bbxuk.com/

What is a Business line of credit application? A business line of credit gives you capital for a range of business needs. You ‘draw’ on the line of credit to give your business more working capital. This can be used for anything from buying stock and negotiating cash flow slowdowns to paying off debts or other emergencies and opportunities for your business. It’s essentially flexible financing. Will I be accepted? What sort of business you are effects what type of line of credit you can qualify for. Broadly speaking a younger, not as well established business could be eligible for short term small business line of credit. On the other hand the medium to longer term credit lines are tailored more towards businesses with a good financial history and well managed financial planning. Most clients meet the below criteria…. Revenue of £150,000 per annum Satisfactory credit history More than 1 year in business How much business line of credit can I get? In terms of how much funding is available, this depends upon your cash flow and forecasts and financial management history. What are the business line of credit requirments in the UK? See the below list as an example of what may be required for an application….. Identification Bank statements Profit and loss statements Satisfactory credit history Balance sheets Company tax reports Cash flow forecasts How do business lines of credit work? Surprises happen in business. Risk is nearly always involved. How can you plan and adapt to it? Single unplanned events can set the progress of the entire business back. Flexible Financing is a solution. A business line of credit is based on a working capital formula that is similar to a personal line of credit that you may have on a credit card. Put simply a bank or commercial lender makes a set amount of finance available to your business. You can draw on it whenever you need it. It can be likened to a ‘pay as you go’ finance model because apart from some possible initial set up fees you don’t incur interest or payments until you actually draw and use the funds. An example of a business line of credit. A Business line of credit can be secured by collateral of some sort, sometimes a business’s property stock and accounts receivables etc. It could also be considered with your own personal guarantee. Some people refer to business line of credit as ‘revolving credit’ because you can draw on it again and again. So say as an example you were given £50,000 as line of credit for a small business and you decided to draw £40,000, keeping £10,000 in reserve. When you pay back the £40,000 plus interest you have the whole £50,000 at your disposal again, ready to use for the agreed term. Business line of credit pros and cons are like any other flexible financing. They depends on your circumstances and what you are looking to achieve in the future. How does a business line of credit compare to a normal fixed term loan? Generally speaking the two suit different business needs. Business lines of credit work better when you’re encountering the ‘ad-hoc’ cash flow issues that businesses encounter whereas a fixed term is suited better to individual purchases and capital expenditure. You can use a business line of credit for all business purchases too. How does a business line of credit compare to a credit card? Both of these could be described a flexible financing but there are a few important distinctions. Credit cards tend to have higher interest rates. If you need to withdraw cash or transfer a balance on a credit card you could be charged withdrawal fees. Business lines of credit to help with cash flow. As an example if it was bill paying time and you are still yet to receive what’s owed from your customer, you could potentially draw on your line or credit in order to cover your costs. Let’s say the bills total £10,000 and you have a business line of credit that extends to £30,000. If you withdraw the £10,000 in order to pay off your bills you only have to pay back the £10,000 plus the interest. Also the interest only gets charged on the £10,000 withdrawn. Not the total £30,000 you have available to you. Let’s say your interest rate on this is 10% per month. You pay back £11,000. Broken down to £10,000 plus £1,000 interest over a full year. Once this is settled you can carry on drawing up to the maximum £30,000. Again you only pay interest in proportion to the amount borrowed. What do I do next? Overdrafts are not the only solution to working capital needs be they short term or seasonal or maybe your suppliers have changed their terms of trade or you have secured a new contract for which working capital is required and support with your cash flow. Overdrafts are a good start however there are times when a separate facility is required for a specific contract or purchase particularly when dealing with overseas customers. Letters of credit and import loans can help and with our extensive access to ‘whole of market’ lenders and funding providers via out broker contact we can support you through the process from start to finish. All you need to do is to phone or complete the online enquiry form to set the ball rolling . ShortForm Business Consultants Ltd (Company Number 10428423) provide consultancy services on behalf of Empire Commercial Finance Ltd (Company Number 08798534). We are not a Broker or Lender.

Is a Buy to Let limited company worth it? Following the recent taxation changes coming into force, landlords have been facing difficult times. Most of have taken a bashing from the UK government, as various tax reliefs are cut back and slapped with the buy to let stamp duty increase. This increase and tax changes have a significant impact on commercial property finance as well as being a game changer for the traditional landlord mortgage. However, despite these setbacks, changing to a buy to let mortgage has become a viable option. The setting up of a buy-to-let limited company can in effect avoid the stamp duty increase and its accompanying new tax laws.h The question becomes is buy to let worth it? What are the major considerations if you decide to take this route? The growth of the buy-to-let limited company It seems recently everyone is talking about the buy-to-let limited company. There have been big changes announced by the UK chancellor. A Buy-to-let limited company is where an individual buys an investment property via a limited company instead of buying it as an individual. With the big changes in the chancellor’s recent budgets, new rules for both mortgage interest tax relief and stamp duty has affected everyone who owns multiple buy-to-let properties. These rules are drastically changing the game for many individuals. How the rules have changed Everything has changed for private landlords who trade individually and would look to a traditional landlord mortgage as there most viable finance option. They are required to pay more for stamp duties when purchasing new properties in some cases even four times more than the previous system. For many, this means it is prohibitively more expensive to add a buy-to-let property to their investment portfolio. Tax relief rules have also changed the income tax brackets of landlords so they will not be able to claim a portion of their mortgage interest back. For 40% and 45% band taxpayers, they will be required to pay more overall. The changes in stamp duty and relief rules mean it is cheaper to run a buy-to-let portfolio using a limited company rather than individually. In extreme cases, landlords may no longer be able to run a buy-to-let business on their own. The details of stamp duty changes The stamp duty changes were the first rules to come into effect. The stamp duty is a percentage of the total value of the property paid when you buy it. Basically a land tax. It is reckoned in a similar way income tax is calculated using bands of value, meaning the percentage of stamp duty goes up once the value of the property increases. If the property is worth less than $125,000, then the stamp duty does not apply. It does come into effect though once the value of the house is more than the amount. The stamp duty goes up from 2, 5, and 10 and finally, 12% for the most expensive properties. So to put this in perspective on typical property worth £275,000 – 0% would apply for the initial £125,000 = £0 2% would apply for the next £125,000 = £2,500 5% would apply for the remaining £25,000 = £1,250 As you can see the costs can add up quite significantly and can easily hit 2% of the value for more expensive properties. Numbers aside here’s how it will affect the landlords. How does the stamp duty affect buy-to-let landlords? Previously, the stamp duty was equal for everyone, whether you are a first buyer or full-time landlord. However, the new rules make stamp duties for full-timers landlord’s 3% more. So if you want to purchase a second home or a buy-to-let property rather than paying the same amount as a first-time buyer pays, the stamp duty will increase. Instead of the 0%, 2%, 5% and 10% given in the above example, stamp duty now increases 3%, 5%, 8%, 13% and 15% respectively. The 3% may sound a little for most people, but it makes a huge difference for landlords. It does not need to be a buy to let property it could just be a second home. Take a landlord with multiple properties. Based on the typical £275,000 value example, he could easily see stamp duties of 5% on individual properties. So instead paying around £4,000 in stamp duty, around £12,000 could be incurred under the new regime. Tax relief details The tax relief has changed too. As quoted above, the new rules don’t allow landlords to climax all their mortgage interest rates, they only allow 20% of the mortgage interest. The charges took effect early this year, 2017 and will be phased in over a 4 year period. Commercial Property Mortgage Versus Buy-To-Let The changes mean that landlords and other people maybe with second homes will prefer to put their buy-to-let property portfolio under the banner of a limited company. It’s just cheaper overall. Still, individuals can get mortgages to purchase buy-to-let properties, but for a different consideration than using a limited company. To do so is preferable to a standard mortgage. Through a buy-to-let limited company, many lenders offer better options to buy property. The move is becoming popular and certain lenders even offer you the option to purchase through a limited company to begin with. Landlords who are higher rate taxpayers used to claim back tax relief on their mortgage interest payments. In other words, they could claim back 45% of their interest payment if they paid 45% income tax on their earnings. Landlords can only claim 20% the basic tax rate on their mortgage interest rate. However, things are different when using a buying-to-let limited company. The mortgage interest rate is viewed as the business expense, meaning it reduces the total amount of taxable profit. For businesses and landlords, it is better when working with limited companies than working individually. On top of that, the corporation tax for profits is 20%, meaning it lower than income tax rates. Other considerations Both the tax relief and stamp duty changes combined are making it difficult for landlords to work individually. This is where the buy-to-let limited company comes into place. Although, in some situations buy-to-let landlords might prefer to use a special purpose vehicle for their rental business. Using a buy-to-let limited company is a good idea for landlords because a corporate structure would change that tax implication on the rental properties. The tax implication of mortgage interest is considered as expenses when the assets are owned by a limited company. This means it would reduce the total amount of taxable profits. This is likely a favorable change for high-rate taxpayers because individuals pay tax on income, whereas a company pays tax on the profit. In these cases, companies will pay less tax than individuals. Finally, the tax bill is reduced for companies that reinvest profits. This means that you could use rental income to expand your portfolio. There are no extra cost incurred. However, you have to account for the setup cost if you are considering transferring your buy-to-let properties to a limited company. How to finance a buy-to-let limited company When looking to set up a buy-to-let limited company, there are lots of things you need to take into consideration before making a decision. In many cases, it’s a favorable move to manage your buy-to-let properties. This said since everyone’s situation is different and there are many different areas of commercial and private tax laws. As well as the circumstance these rules and regulations should always be a part of the discussion whenever you think of starting a limited company.