The commercial lending sector has seen a raft of new entrants enter the market recently as an increasing number of lenders, as well as specialists, look to diversify their offerings.This could be cited as a result of margins being eroded in more mainstream areas through regulatory changes and intense competition within the marketplace, but whichever factor might be fingered, the number of brokers looking towards different sectors to make up for possible shortfalls in levels of business are, without doubt, rising.
New breed
Commercial mortgages have historically been seen as an area where high-street banks controlled the vast majority of business placed in this market. However a new breed of lender has brought a variety of new providers to the fore. As with other specialist areas,
building strong relationships, product innovation and service are crucial ingredients to intermediaries and providers alike.
As highlighted by Stephen Johnson, sales and marketing director at Commercial First, it has become more apparent that strong relationships supported by human contact are essential to the effective interaction between lenders and brokers. He says: “We understand that firms need advice and support about commercial processes, no matter what their size or how long they have been handling commercial business, and the preference remains strong for face-to-face contact.”
As commercial mortgages are becoming readily available through intermediaries, the demand for innovative products and services is leading to a greater variety of products in the marketplace. The new breed of commercial mortgages has brought the commercial sector into the broker marketplace, offering simpler, more transparent products that intermediaries can understand and explain to their clients. Bringing the service standards of the mortgage market to commercial lending and making it rewarding for brokers should be the cornerstone on which all propositions are built. Therefore it is hardly surprising that demand is building for a greater variety of commercial products combined with the higher service levels.
Martin Wade, director at Mortgage Options, comments: “The commercial market has been growing for some time with buy-to-let (BTL) landlords looking to diversifying their portfolios. A number of property investors will initially test themselves with a residential BTL and will then move on to more interesting projects.
Although the transaction of buying a commercial property can be more expensive than residential, the rental income and the longevity of a lease mean that there is less required of the landlord once a property is leased out. A tenant may rent a residential property for six to 12 months whereas a commercial property is likely to be leased for five to 10 years.
Flexibility and innovation
For years the commercial finance market has been regarded as very stuffy, whereas nowadays commercial loans are much more readily available. Distribution has improved and criteria has become more flexible as new players enter the market.
As commercial deals become more accessible deals are increasingly being placed by independent brokers. Whereas before, consumers would have gone to a high-street bank, these days consumers are aware of the competition in the market and that they are more likely to get a better deal by going to an independent broker,” adds Wade.
With improved distribution and increased flexibility in offerings it seems mortgage intermediaries are exploring the viabilities of advising within the sector.
Andy Young, managing director at The Business Mortgage Company (TBMC), says: “Historically intermediaries would shy away from commercial mortgages, because clearing banks had such a rigid criteria. Many residential intermediaries would not want to risk their client being rejected and putting their relationship with them into jeopardy. However, over recent years we are finding that an increasing amount of intermediaries are looking into offering commercial mortgage advice.”
The problems and risks associated with commercial mortgages are limited and as more lenders have entered the market, the underwriting of products has become much more flexible. Many advisers have realised that commercial mortgage advice offers an opportunity to earn more money.
As new lenders have spotted a gap in the lending terms of commercial mortgages, they have managed to make an impact on the market. Young says: “Over the last year or two there has been a growing amount of pressure on clearing banks to make their terms more competitive.
“The commercial market is very complex and is still quite niche, but I believe the market will grow as more intermediaries offer their advice. If you look back 15 years ago, most residential mortgages were done by banks. Nowadays 60 per cent of all residential mortgages are arranged by brokers. I think the commercial mortgage sector will move in the same direction. Currently only 15 per cent of commercial mortgages are done through brokers, but in the future that is set to increase.”
As Young explains, it is a complex and still niche area and not one that an intermediary should enter into lightly. However with increased competition, widening choice and enhancing service levels then it can only be to the benefit of brokers, borrowers and lenders, especially if it results in growth in the overall commercial mortgage market.
