Whilst helping a friend work out the costs involved in raising a commercial mortgage recently I suggested that they use a commercial mortgage calculator. It turns out that this simple piece of advice actually involves a lot more work.
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With all the claims and counter claims circulating about the turmoil within the finance markets it is difficult to establish what is really going on.
Naturally the main authority figures within the finance industry are at pains to point out that the economy is strong and that the lending institutions within the UK are all strong. Well one would hope so given that the high-street banks in this country have been making staggering profits over the last 3 years.
We’ve taken the liberty of listing some of the headlines from the finance industry press over October and November:
There is a very good reason why commercial mortgage lenders always advertise their best commercial mortgage rate, they want to attract the maximum interest in their product range.
The trouble is that when people start looking for a business loan they do not really know what makes a good commercial mortgage rate. It’s easy for an advert to promise 1% over LIBOR, but what if you don’t have the first idea what LIBOR is? (its the London Interbank Offer Rate by the way). The most common complaint amongst business customers is that the way in which the mortgage rate is calculated is not transparent. They do not understand how they went from applying for the commercial mortgage because of an attractive rate in an advert to being offered a much higher rate.
The exact criteria that banks and other commercial lenders use to work out what rates to offer are not usually made public, but the general principle that they employ remain fairly constant from one lender to another. The first question that needs to be addressed is whether the property is an investment or for owner occupation.
Brokers and commercial lenders are reporting that demand for commercial mortgages remains strong. Although there continues to be much speculation about the future of the housing market in general the commercial property sector appears to be quietly carrying on regardless.The value of most commercial property is underpinned by the rental yield that it can generate, given that the majority of commercial property is still not owner occupied there is plenty of scope for the market to change.
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Although the majority of landlords will not accept tenants on Housing Benefit there are many landlords who will. This situation has the potential to change when the new rules affecting housing benefit take effect from April 2008.