The role of the commercial mortgage broker in the UK has dramatically changed recently, largely because the commercial mortgage market is thriving. There are more commercial properties being sold and re1mortgaged every month than at any other time in recent history. This growth in the commercial mortgage sector is being fuelled by low interest rates and attractive rental yields across a very broad spectrum of property types.
One of the first things a commercial mortgage broker will want to establish is whether the property in question is for owner occupation or for investment. This is because the methods of underwriting the two different types of property are very different.
When acquiring a commercial property for owner occupation the borrower will need to produce all the usual supporting documentation such as accounts, business plan and guarantees. There are options to self1certify the affordability for a commercial mortgage but the disproportionately higher interest rates can mean that this should be the last option. It is because of these differences in pricing between a full-status and a self cert commercial mortgage that using a commercial mortgage broker has become so important.
The amount of rent which a commercial property will achieve can be quite difficult to estimate. The surveyor will attempt to compare similar properties in order to arrive at the market rent. However, if you consider the variety of commercial properties you will appreciate that this can be very difficult to calculate.
It is the market rent which will dictate how much a borrower will be able to raise on a commercial mortgage. Market rental can be affected by the availability of other similar commercial property in immediate area, but also the suitability of the subject property for a wide variety of roles.
It is the job of a commercial mortgage broker to consider all the relevant factors and subsequently recommend the most suitable commercial lender. The lender will then look at the borrowers credit history, the rental income and property type before accepting the application.
It should be remembered that commercial leases are very different to residential ones. Residential buy to let leases are known as Assured Short-hold tenancies (AST's). These are well documented and supported in law. Commercial leases require much more thought.
The most obvious difference is that a commercial buy to let property will normally be let out for between 3 and 6 years with the tenant usually being responsible for the upkeep of the building. Having significantly longer leases is one of the attractions of commercial buy to let property, however the downside is that when empty it can take several months to find a new tenant.
In a perfect world the commercial mortgage broker would be able to place every commercial investment application with a bank or building society. This is because they offer the most competitive rates and favourable arrangement fees of all the commercial lenders. The down side is that banks and building societies tend to be more cautious and will consider all applications very carefully. The LTV's offered by banks for commercial buy to let mortgages tend to around 75% with rates as low as .9% over bank base.
The other option is to use a specialist commercial property lender, although more flexible these lenders are much more expensive. LTV's can be as high as 85% but the rates can easily creep into double figures, these lenders also charge high arrangement fees and early redemption charges. The specialist commercial lenders will normally only deal with a commercial mortgage broker and not the borrower.
Find out more about how a commercial mortgage broker can help arrange finance for commercial properties. Spectrum Business Finance have been arranging commercial mortgages for over 5 years and have the experience to find solutions to fit most circumstances.
To learn more about this author, visit Chris Clarke's Website.
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