Commercial Watch Episode 2
We initiated our commercial watch by introducing the insightful analogy of ” “When One Door Closes.” Today’s Commercial Watch Episode 2 is about “Waiting for the bounceback.”
The impact of the pandemic was significantly more pronounced in the commercial mortgage market. It affected this sector more than others, particularly hitting the hospitality industry hard. Consequently, lenders adopted a more prudent approach. They adjusted their criteria by reducing loan-to-value ratios. They also rejected applications from specific sectors.
With the reopening of the high street, we find ourselves again enjoying food and drinks in hospitality establishments. The prevailing question is: when can we expect a rebound in the commercial market? Will the vacant shops see new occupants, and in the long run, how will the shift to remote work influence the demand for office space?
Commercial Watch Episode 2 | Green Shoots
We have seen green shoots of commercial mortgage appetite, but lenders are still cautious. While opportunities abound for businesses like takeaways and warehouses that thrived during the lockdown, securing financing for establishments like pubs—already challenging to operate pre-lockdown—remains an uphill task.
Some lenders are adopting innovative affordability assessments, allowing them to consider hospitality ventures up to 65%. Together, which recently supported a pandemic-affected small hotel, is a case in point. 
Notably, their affordability calculations factor in income derived from diverse business sources, showcasing adaptability amid economic uncertainties.
Despite this positive shift, caution prevails among certain commercial lenders, particularly in specific sectors. The buy-to-let (BTL) market remains a focal point for some, and they emphasise navigating its complexities.
BTL lenders typically focus on properties like houses of multiple occupation and multi-unit blocks. They often impose restrictions on the number of bedrooms or units. These commonly range from four to eight.
In contrast, commercial lenders, such as InterBay, support larger properties with up to 20 bedrooms or units. This divergence in approach shows lenders’ nuanced strategies. They navigate the evolving landscape of commercial mortgages. (Commercial Watch Episode 2)
Commercial Watch Episode 2 | Limited Company
Limited companies present a distinctive facet of property financing. While most Buy-to-Let (BTL) lenders extend their services to these entities, commercial lenders navigate more intricate structures.
It’s not just about setting up a special-purpose vehicle limited company for BTL. Entities like Hampshire Trust and Shawbrook also entertain working with ‘trading business’ companies. Unlike focusing solely on property, these companies engage in diverse business activities.
Consider a scenario where a tradesperson, like a plumber, aims to leverage retained profits within their company as a deposit for a BTL property. Commercial lenders, equipped with the necessary expertise to manage heightened commercial complexity, can facilitate such transactions.
Moreover, if the tradesperson’s business is affiliated with an offshore company or a trust, the commercial lenders step in to provide support.
The landscape of holiday-let properties is undergoing intriguing developments. With international travel restrictions in place, domestic holidaying is on the rise. Reports highlight significant upticks in holiday-let bookings as vacationers redirect their plans to explore the UK.
BTL lenders readily offer mortgages for holiday-let properties, a trend gaining momentum after mortgage interest relief tax regulations changed. Notably, investors holding a holiday-let property in their personal name, operated as a business according to HM Revenue & Customs rules, can fully offset mortgage interest for higher-rate tax relief.
Lenders like YBS Commercial Mortgages have recently ventured into the holiday-let market. The distinguishing factor lies in the affordability calculation. Unlike BTL lenders, who base affordability on the rental income for a family let, commercial lenders treat holiday lets as businesses.
Their assessment considers the income generated from each holiday booking, deducts the running expenses and calculates affordability based on the resulting profit. This approach often yields a significantly higher borrowing capacity than the traditional family-let model. (Commercial Watch Episode 2)
Commercial Watch Episode 2 | Government help
In its commitment to revitalising the business landscape, the government has introduced initiatives like the Recovery Loan Scheme to facilitate commercial recovery on the high street. The scheme offers loans designed to aid businesses in overcoming the repercussions of the Covid pandemic.
These funds can be utilised for various business requirements, including managing cash flow or fueling growth, all without incurring interest charges. Instead of interest incentives, the government guarantees lenders, incentivising them to extend financial support to businesses striving to recover, a move they might have otherwise hesitated to make.
To explore lenders participating in this scheme, interested parties can refer to the British Business Bank’s website.
As the commercial market’s future unfolds in the upcoming months, the trajectory of the sector’s development remains uncertain. Meanwhile, businesses can capitalise on the specialised offerings of commercial lenders, particularly those catering to the buy-to-let (BTL) niche, referred to as ‘super-specialist’ services.
This dual approach of government-backed schemes and specialised commercial lending gives businesses a strategic advantage as they navigate recovery.
We’ve ended our “Commercial Watch Episode 2 | Waiting For The Bounceback Victory.” Until next time, stay Connect!
