Commercial mortgages are often associated with properties used for business purposes, either by the business itself or leased to other businesses. However, the definition of a commercial mortgage can sometimes be less straightforward than it seems.
A business usually occupies a commercial property. This could be the owner’s company (Commercial Trading) or a business tenant (Commercial Investment). However, with commercial mortgages, the lines between these categories can blur.
‘commercial mortgage’ often broadly encompasses various loan types from commercial lenders. For instance, some specialist lenders, like Shawbrook, Together, and Aldermore, offer flexible criteria. They extend beyond traditional commercial properties into mixed-use properties (Semi-commercial) and complex buy-to-let (Residential Investment).
Commercial Watch Episode 4 | Changing Landscape of Commercial Lending
In the past, advisers mainly considered high-street commercial lenders for clients. This was especially true when seeking higher Loan-to-Value (LTV) ratios or interest-only options. However, the landscape has evolved significantly.
Challenger banks, such as Allica Bank, Shawbrook, and Cynergy, now offer competitive products. These banks provide more flexible criteria, including higher LTVs than traditional high-street lenders. Consequently, advisers have a wider range of options to consider.
Commercial Watch Episode 4 | Loan Size Matters
Previously, an adviser would check if the client needed a higher LTV or an interest-only option. If the answer was no, high-street commercial lenders usually offered the best deal.
That’s no longer the case. Before the latest rate issues, commercial adviser Natalie Anderson said, “I placed a great deal with Interbay at 5.29% 5-years fixed, while Barclays offered over 7% for 5-years fixed!” Unfortunately, loan size seems to be one of the increasing issues in the commercial mortgage space.
Earlier this year, Interbay increased its minimum loan size to £1,000,000. Although most high street lenders claim the minimum is only £25k, they are not keen on anything less than £150k.
Commercial Watch Episode 4 | Appetite is Key
Appetite is a crucial term in commercial mortgages. Unlike BTL and residential mortgages, criteria are not clear-cut. Usually, there is no specific set of products to choose from.
Lenders’ decisions often hinge on their appetite for a particular sector. Additionally, an adviser’s presentation can significantly influence application success. This highlights the importance of understanding each lender’s current focus.
Therefore, it is vital to keep abreast of market trends. Lenders constantly adjust their preferences based on economic shifts. Advisers need to stay informed to maximise their chances.
Moreover, building a relationship with lenders can be beneficial. Trusted advisers may get more favourable considerations. Ultimately, knowledge and presentation skills are key.
Commercial Watch Episode 4 | Navigating the Commercial Market
Researching commercial opportunities is different from the residential market. Transitioning from one to the other can be challenging. Generally, sourcing systems do not cater to commercial mortgages. Yet, some tools, such as Business Money Facts, can assist. Systems like Knowledgebank also hold some criteria.
Most commercial advisers rely on their experience and understanding of lenders’ appetites. Knowing where to turn for a case can be complex. This challenge is especially evident in the current market.
Commercial adviser Shannon Harwood notes, “Banks used to be reliable for specific types of finance, such as warehouses or retail. However, now you can’t assume they will consider the same types. A lot of time is spent checking everything instead of relying on personal knowledge of the bank.”
Commercial Watch Episode 4 | Access to Lenders
If you are new to the market, access to lenders can be challenging. Most commercial lenders, including high street banks, limit their distribution partners. The bespoke nature of the products and underwriting means they lack resources. They cannot deal with all market advisers, especially less experienced brokers.
However, working with a distribution or packaging partner in the interim is beneficial. It is an excellent way to gain experience and knowledge. Moreover, it helps you earn recognition from lenders. This approach can open doors that might otherwise remain closed. Additionally, it offers a structured way to navigate the complex UK mortgage market.
Commercial Watch Episode 4 | Impact of Interest Rates
The rising interest rates have impacted the commercial market. Commercial lenders now avoid fixed-rate loans, or the rate varies based on drawdown costs. However, Shawbrook still offers fixed-rate loans. This distinction sets Shawbrook apart in the current market.
Commercial Watch Episode 4 | Market Resilience and Innovation
The measures announced in the mini-budget caused interest rates to soar. However, some announcements will benefit the commercial market. One key announcement is the expansion of the Seed Enterprise Investment Scheme (SEIS). This scheme helps more UK startups raise investment with tax relief for investors.
Moreover, discussions are ongoing with 38 local authorities. The goal is to identify ‘Investment Zones’ with various benefits.
Lower taxes will benefit businesses in these zones. Full stamp duty relief will also apply to land purchased for development, including residential and commercial properties.
Times have been turbulent in all markets, including mortgages. However, the need for mortgage advice persists. Clients still seek mortgages, and lenders remain willing to lend, ensuring the business continues.
Consequently, lenders will innovate and find new ways to adapt. There are always opportunities for advisers who invest time in their knowledge and development.
