The commercial mortgage market is enjoying an unprecedented period of growth, and most of the new business is flowing though intermediary distribution channels. Before the new breed of commercial mortgage lenders entered the UK marketplace, borrowers that wanted to take out a mortgage loan on a commercial property would have negotiated terms individually with their lender of choice – normally the bank that handled their day-to-day banking needs. There were no standardised products and criteria, and borrowers were often faced with a ‘take it or leave it’ decision. Now, borrowers seeking a commercial mortgage loan are able to consult a mortgage adviser who should be able to source a competitive deal for the customer from a growing range of lenders and products. Advisers who are ignoring the booming commercial mortgage sector are missing out both on procuration fees and on the opportunity to develop valuable ongoing client relationships.
The problem is, even though many residential mortgage brokers would love to diversify into commercial mortgages, they don’t know how to take the first step. I suggest that there are three progressive stages of being involved in broking commercial mortgages, and the first step could not be easier.
The first step
Imagine a mortgage broker who has no existing contact with commercial mortgage lenders and who gets an enquiry about a commercial mortgage out of the blue. One option is to say: “Sorry, I can’t help you”. The other option, open to the more entrepreneurial broker who is looking to expand and diversify their trading activity, is to find a way of referring that sales lead to a specialist commercial brokerage in exchange for an introduction fee.
If there are no existing relationships with specialist commercial business-to-business brokerages, then I suggest our theoretical residential mortgage broker, faced with their first-time commercial deal, picks up the phone and calls one or more commercial lenders – whose contact details will be on their press advertisements. We certainly welcome such calls and will respond by putting individual brokers in touch with a commercial specialist broker (in their locality, if possible) who can take the introduction and progress it. Just knowing the right commercial specialist to introduce business to can generate significant additional fee income, and many of our commercial specialist panel members pay a substantial proportion of the procuration fee – and sometimes all of it – to introducers. The key to becoming a successful commercial mortgage introducer at this basic level is to recognise the commercial opportunities that come your way and not let them go to waste.
Taking it to the next level
This brings us to the next level of involvement in handling commercial mortgage enquiries, which is all about generating commercial business from existing mortgage clients. This involves developing a constant awareness of how a commercial mortgage could provide a solution for customers. For example, the self-employed residential mortgage customer could be thinking about buying their own business premises – either currently or at some point in the future. In addition, it is very likely they have a need for capital within their business, whether through a desire to consolidate some short-term unpredictable or expensive credit, or to help achieve business expansion. By taking the commercial mortgage message to existing customers, this need could well be satisfied and your existing client relationship further cemented.
Another section of the customer base that could be made aware of the commercial opportunities are existing buy-to-let clients. Successful buy-to-let investors are increasingly looking to diversify into the growing market for commercial property investment and will need to source a commercial mortgage. As with the basic level, creating opportunities from existing customers can be achieved with very little additional work – but brokers need to keep the subject at the forefront of their minds and become adept at recognising when a commercial mortgage may help their clients.
The third level
The third level of involvement in the commercial mortgage market for brokers wishing to build up that side of their business is to engage in proactive marketing and lead generation for commercial mortgage business. Here, there is no easy answer or quick fix but, as with all successful marketing activity, campaigns need to be planned and monitored. Successful activity should be built up and unsuccessful strategies should be abandoned. You have to ask yourself questions about which activities yield dividends and which don’t. Where is your marketing budget having the greatest effect? How can that activity be developed to yield future returns? All of this requires careful and ongoing measurement and continual revision of marketing strategies to build on your successes.
Here are some examples of simple but effective marketing techniques. You could draft a professional letter pointing out your commercial mortgage offering and mail it to your customer database, followed up by an e-mail or phone call. Your normal flyers, advertisements and newsletters can start to contain mentions of commercial mortgages and, if you have a sales team, why not incentivise them to increase commercial business by running a bonus scheme? Remember, regular follow up is far more effective than just one contact. The successful marketing campaigner will be asking themselves, ‘how do I get my business now? How can I use that successful technique to create new business in the commercial sector?’
All three progressive stages of involvement in generating commercial mortgage business can still lead up to the point where the case is introduced to a specialist mortgage master-broker/packager who will process it though to completion with the lender of choice. On the other hand, some introducer firms may wish to move on to joining the broker/packager panels of commercial lenders so they can handle their own commercial cases from start to finish – especially if they are already skilled in packaging residential mortgage business and have effective processing operations up and running. This decision should not be taken lightly, as it will involve investment of time and money in creating the resource and capacity for commercial business, as well as training staff to become confident and knowledgeable in this sector.
Prevalent issues
Traditionally, most commercial mortgage business has been introduced by professional advisers such as accountants, IFAs or business consultants, and this is still a successful channel for commercial business. These advisers are in an ideal position to assist business operators, but are often unwilling or unable to process an enquiry through to full (and successful) mortgage application. By contrast, this is exactly the area in which residential brokers/packagers have excelled and where their processing skills and systems can be used to convert those leads into completed cases in the shortest possible time.
There are certain issues that are more prevalent in commercial property transactions than they are in residential ones, and they will have implications for both the valuation and legal processes. These include, for example, leasing arrangements; rights of way/easements; planning and licensing issues; and property not listed at the Land Registry. Intermediary firms wishing to be serious players in the commercial sector must have the will, and make the effort, to learn and understand the special market conditions and valuation/conveyancing idiosyncrasies of commercial property transactions. However, once these skilled processors have gained the necessary experience of the commercial market sector, they will be well equipped to convert these leads into completed mortgages. Our experience has illustrated that three weeks is a very realistic and achievable timeframe for a commercial remortgage – and it has been the traditional residential mortgage broker that has shown the most aptitude to making this possible.
So, how is this knowledge and experience to be obtained? There are many ways for interested intermediary firms to become more skilled in commercial broking. We, for example, have two national trainers dedicated to raising the skills and awareness of brokers both in processing and underwriting applications, and we have a highly successful marketing support programme that can provide intermediaries with compliant marketing materials for their own campaigns. We have a training manual and presentation that firms can use, and we run training seminars at regional locations. We also arrange head office visits where broker firms can meet the underwriters and members of the on-site legal team to gain a greater insight into the underwriting and processing of cases. As more new commercial lenders enter the market place, similar training facilities may also become more widely available.
When it comes to the new breed of broker-distributed commercial mortgages, readiness of supply seems to be stimulating demand and the market is growing rapidly. In a highly competitive environment, no firm should risk being left standing while others are racing ahead to enjoy the benefits of participating in commercial mortgage business, and this can be at whichever level best suits you.
