In the world of residential mortgages, the role of intermediaries and packagers is currently the subject of heated debate as some lenders seek to increase their direct-to-consumer business and some traditionally packager-only lenders start to open their doors for cases submitted direct from brokers.
In the commercial mortgage market, the intermediary and packager roles are also undergoing a period of evolution, and we are seeing significant growth in the role and prominence of both specialist commercial finance brokerages and of residential mortgage packagers that are developing commercial mortgage capabilities. Although these two types of commercial intermediary firm have sprung from different roots, they are providing a similar function for brokers who are looking for an easy route into the commercial mortgage market. This is a healthy development for the sector as it increases competition and choice for brokers, ensuring that quality of professional service is the key to success.
Strengths
Today’s successful commercial mortgage packagers have grown from the residential mortgage broking and packaging industry. Many draw upon large numbers of mortgage advisers, IFAs, estate agents, etc, with whom they have well-established relationships and mutually beneficial referral arrangements. Commercial packagers that have their roots in residential mortgage packaging also understand the science of mortgage processing and the documentation and search requirements of lenders, which is another great strength. These businesses have successfully added a focused commercial mortgage solution to their offering. Completing a commercial transaction sits very comfortably within their model and, even though a very detailed development-finance requirement or a corporate financing of a management buyout would be beyond their scope, some have brought a new level of speed andservice to customers as they apply their processing skill to the sector.
Turning to the commercial specialists, these firms tend to be run by people who have a background in banking and who are highly experienced in putting together a wide variety of commercial finance facilities. Mortgages have traditionally formed just part of overall trading activities and historically access to business customers has been through local contacts and a smaller group of business introducers than residential packagers would draw from, which has been established over a long period of time. These specialists are often smaller businesses, handling lower volume but higher value commercial cases.
Their main strength, gained from a strong background in commercial finance, is the specialist and technical knowledge that they have, which in turn helps them to deliver complex funding solutions. They can provide commercial mortgage finance in isolation or as part of a wider financing package. The specialists also have a sound understanding of the legal and valuation issues more commonly associated with commercial security and they understand the role goodwill can play in a client’s expectations of property value. The implications of planning use, lease arrangements and licensing laws in terms of executing charges and achieving speedy completions are also second nature.
Competition
The two groups grew from different backgrounds, but are now quickly starting to borrow from each other’s model and compete for the commercial business of brokers. The supply of new products, along with demand among brokers to maximise sales opportunities with existing clients, is fuelling the growth of this competition. The introduction of innovative product features means that brokers can now access products that customers cannot obtain directly from lenders. This is a strong selling point to increase broker distribution, and packagers and specialist commercial brokers are communicating this message to the brokers well.
Competition does not exclude collaboration, especially where this brings mutual benefits, and packagers are building strategic partnerships with specialist commercial brokers as they realise a mixture of residential distribution and commercial expertise can be a powerful combination. The move towards a commercial sector dependant upon broker origination can be maintained as long as the service and product innovation available continues to be competitive and rewarding. In turn, increased broker distribution for commercial mortgages will enable more and more powerful packagers and commercial specialists to emerge.
Stephen Johnson is sales and marketing director at Commercial First Ltd
