Mortgage brokers have become accustomed to continual innovation in residential mortgages. Not only are there products for every shade of non-conforming – from the heaviest adverse to the lightest of near-prime – there are also mortgages for every known purpose. These include shared ownership, equity release, 125 per cent loan-to-value (LTV), and even a mortgage you can pass on to your children when you die. To a certain extent, the fact that these niche, high-margin products are sold almost exclusively through brokers helps to fuel the drive to greater innovation. After all, good brokers want to find a solution for every customer, and the lending industry is not backward in designing products where demand for a new niche can be demonstrated.
Now that commercial mortgages are becoming readily available through intermediaries, the demand for innovative products and services is highly likely to similarly lead to a greater variety of products in the marketplace. The old model of getting a commercial mortgage was for the borrower to make a case for a loan to their main business bank, and then be offered a deal that reflected the bank’s idea of the level of risk involved. The new breed of commercial mortgages brought the commercial sector into the broker marketplace, offering simple, transparent products that intermediaries could understand and easily explain to their clients. Bringing the service standards of the mortgage market to commercial lending and making it rewarding for brokers and advisers was also part of the new offering. Now the genie is out of the bottle, it is not surprising that demand is building for a greater variety of commercial products combined with the highest possible service levels.
Responding to demand
In response to this demand, we overhauled our product range, splitting it to provide a tailored solution specific to both owner-occupied commercial properties and investment properties. For owner-occupied properties there are five products: three designed for commercial and semi-commercial property, one for residential property with a business use and a specific scheme for farms. The commercial and semi-commercial products differentiate between borrowers who can provide audited accounts, unaudited accounts or utilise the self-certification of income. Business applicants can now cascade between these three main options depending upon the quality of their financial information and also their credit profile. A ‘Trading from Home’ (TFH) scheme specifically caters for business borrowers seeking a business loan and who work/trade from their residential property.
The ‘Investor’ range of products is targeted at private investors looking to acquire commercial property assets. A pricing scheme based upon property LTV has been designed, with margin reductions available for long- term tenant leases. Rental requirements are either 115 per cent for interest only repayment options or 100 per cent for capital and interest loans.
Technology benefits
A greater variety of competitively priced products is not the whole story, and brokers used to high service values and the benefits of technology in the residential lending sector expect as much from commercial mortgage providers. A major element of what broker firms expect as ‘service’ is access to lenders’ sales staff with regular face-to-face visits. We have recently doubled the size of our salesforce, employing top quality staff with good experience in the field. Added to this we now have two national training managers, whose duties include writing and running training courses as well as identifying new ways to further streamline the application to completion process for brokers. This added value element helps to cement relationships with intermediaries while helping them to submit applications more successfully.
With new lenders entering the marketplace, similar products and services will be coming on stream. However, this is to be expected in a free market, and if increased competition widens choice and enhances 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 as more businesses seek to take advantage of the products and service available.
