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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