The Mortgages for Business survey shows that 71% of buy-to-let investors already have an element of commercial property in their portfolio and 89% of those who currently do not invest in commercial property have plans to widen their portfolio to include commercial properties.
The survey also shows that commercial property investors favour small offices and office developments and light industrial units. Only 13% of investors choose shops and retail units. However, for those who do not currently invest in commercial property, shops and small offices emerge as the preferred investment.
David Whittaker, managing director at Mortgages for Business, says: “The residential buy-to-let market has seen a tightening in rental yields over the past 12-18 months with investors increasingly taking a long-term view towards capital appreciation. It is not surprising that the serious investor is looking towards the next investment hotspot. What is surprising is the number of investors already including some element of commercial property in their portfolio.
The Mortgages for Business survey also found that 55% of commercial property investors expect to increase their portfolio by between three and five properties in the next 12 months.
Investors who currently include commercial property in their portfolio expect to see an average total property return (rent and capital appreciation) of approximately 13%. Investors who are considering commercial property expect a more realistic 9% return on any commercial property investment. Most investors, 41%, view their investment strategy as a long-term investment lasting 20 plus years. Investors choose commercial property primarily on its rental income prospects, location and long-term growth prospects.
Investors were asked how easy it was to secure finance for their commercial property portfolio. Over a third of investors found it either very straight forward or straight forward.
Whittaker adds: “Securing investment finance for commercial property has probably been the largest barrier for most would be investors. Investors typically have to provide lenders with details on the property, profiles of tenants and of the borrower. Essentially commercial property was out of reach for most investors. However, there are now a number of new investment products on the market offering off the shelf mortgages similar to those for the residential buy-to let market.
Mortgages for Business and SBLS jointly offer a product that allows investors to borrow up to 85% of a property's value, compared against an industry standard of typically between 75-80%, without the red tape and restrictions usually associated with commercial property mortgages.
The product is offered to individuals, self administered pension funds, trusts, partnerships and limited companies and can be used to invest in both commercial or mixed – commercial and residential – property including retail, offices, light industrial and warehouses.
The product is being offered with an interest rate of between 2% and 4% above base dependent on loan value and length of loan term. The loan term is between five and 25 years and the repayment terms are capital and interest. The minimum loan size is £50,000 with a maximum of £1m. Capital holidays are also offered.