Property Funding and commercial finance in the UK » Commercial Mortgages

What’s New In Commercial Mortgages

Peter Clarke — Wed, 27 Jan 2010 21:57:45 +0000

This content comes to you from Property Funding and commercial finance in the UK - Commercial Mortgage Brokers | Property Development Finance | Bridging Loans

In a week that it was announced that the UK economy has crawled out of recession it is worth taking a moment to think about what opportunities exist for commercial mortgage brokers at the moment.

Commercial mortgage brokers have had something of a difficult time over the last couple of years. Obviously the availability of cash rich lenders has somewhat changed, but at the same time the number of optimistic entrepreneurs has shrunk.

One interesting snippet of news is that Birmingham based lender/broker “Crystal Mortgages” have launched a 100 per cent commercial mortgage product aimed at the medical sector.

These specialist commercial mortgages are available for terms between 7 and 30 years with a minimum loan of £30,000. Rates are apparently variable and start from 2.51% over BBR (or Libor)

Considering market that these mortgages are aimed at you can take it as read that management accounts showing comfortable levels of affordability will be expected, along with a near perfect credit history. Seems that some goodwill can be included in the overall loan.

An Opportunity for Commercial Mortgage Brokers?

On a completely separate note, there is one interesting theory doing the rounds at the moment. It relates to an often overlooked clause in most mortgages agreements (particularly commercial mortgages) that requires the borrower to ensure that the loan does not exceed a specified Loan-To-Value (LTV).

One of the mainstream residential lenders tried reminding their customers about this type of clause and then retracted in the face of some fierce media reaction. Such reaction is probably unlikely in the case of commercial mortgages.

Essentially the clause permits for the lender to demand cash to reduce the loan to an acceptable level if the value of the asset shrinks, or introduce additional security to reduce the loan ratio. Here’s where the business opportunity for commercial mortgage brokers could present itself:

Assume that a business took out a 65% LTV commercial mortgage with a mainstream lender on a property valued at £200,000 in 2007. Three years later the value of the property has shrunk to £155,000 – the loan now stands at around 85% so the bank demands that the business introduces some capital to reduce the loan. Businessman is stuck.

Up steps the switched on commercial mortgage broker and takes a customer from a mainstream bank to a suitable alternative lender who offers a higher loan to value.

Well OK 85% on a self cert commercial mortgage might be a bit of a stretch, but the principle is sound, what do you think?

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Good News about Commercial Mortgages – well sort of.

Peter Clarke — Sat, 23 May 2009 07:28:19 +0000

This content comes to you from Property Funding and commercial finance in the UK - Commercial Mortgage Brokers | Property Development Finance | Bridging Loans

Anyone who has a Commercial Mortgage will (or should) be familiar with LIBOR. So they should also be quite pleased that LIBOR has reached a record low.

LIBOR is the rate which determines the cost of most commercial mortgages and many other forms of borrowing. The rate coming down may bring good news in that interest rates on mortgages and other loans may follow suit.

Having said that, a recent Moneyfacts article reported that:

On an unsecured loan the rate is set at outset and repayments are fixed. Most secured loan repayments move with base rate or LIBOR, but despite being in a low interest rate environment the average rate has increased from 9.9% to 12.4% in the last two years

Just before things started to go badly wrong some of the independent Commercial Mortgage lenders were starting to offer variable rate mortgages. Good example would be Commercial First – although they have shut-up shop for new business they had a significant market share of small commercial loans. Many of the later loans were sold on variable rates.

Anything that reduces outgoings for businesses right now is going to be good news, but anything that gives banks good reason to start selling commercial mortgages again is going to be even better news.

Sadly, the majority of Second Charge loans (homeowner loans) were sold on fixed rates – at the peak of the property boom Second Charge loans were being sold at an incredible rate, and by a market that faced no significant regulation.

Second Charge loans on homes are very often linked to LIBOR ( which often comes as a shock to homeowners) and are notoriously slow to change with the main rate – if at all.

Are you on a LIBOR loan? – have you seen a change in rates?

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Fast Commercial Mortgages

Peter Clarke — Thu, 13 Sep 2007 13:39:39 +0000

This content comes to you from Property Funding and commercial finance in the UK - Commercial Mortgage Brokers | Property Development Finance | Bridging Loans

A fast commercial mortgage is easy to get but be prepared to pay a little extra.

Competition among financial organisations and banks is the main factor that in recent times has led to commercial mortgages becoming much easier to obtain. Difficulties traditionally associated with a poor credit history once meant that an application for a commercial mortgage might well have been rejected.

Nowadays however bad credit history is simply perceived by the lender as carrying a higher risk and that higher risk can be offset by an appropriate increase in the level of the commercial mortgage interest rate. The choice of a lender is very important since there can be quite wide variations in terms and conditions and rates of interest. Your credit history and the period of repayment are factors that immediately affect the terms and rates of a commercial mortgage.

As a general rule it is probably preferable to deal with one of the ‘High Street’ banks even at the expense of a slightly higher interest rate. Failing this, the finance companies will almost certainly provide you with the funding you need but it is advisable to ‘do your homework’ on the lender of your choice. Competition is fierce and they usually advertise their ‘best’ deals. This does not necessarily mean these deals apply to you.

Commercial mortgage rates vary according to your personal circumstances and requirements whereas the ‘headline rate’ that is advertised is the very best they will do and is reserved for those with clean credit and straightforward requirements. It is therefore essential to establish exactly the terms applicable to you.

Any contract that sets out the terms of lending must be carefully read and if there is any doubt about its meaning or implications it should be taken to a lawyer or at least a reputable commercial mortgage broker. Remember that you will be bound by the contract that you sign.

There are many facilities available that will give you information about lenders, their reputation, their products and generally whether they are a fair and reliable company to support you for the duration of your loan - and beyond if you should choose. Make use of the Internet, newspapers,the trade magazines as well as word of mouth reports and questioning the company personally on any points you are unsure about.

In summary, do your research carefully and pay close attention to the terms offered. And remember that a bad credit history will not prohibit your application but you should be prepared to pay a slightly higher commercial mortgage rate.

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