0845 230 2100
info@omegacs.org
The Commercial Mortgage Maze
Many IFAs have business clients they could help, given the means, motive
and opportunity. In addition business purchases, transfers and commercial
property purchases are ever increasing, as more people decide to start their
own business. How can you assist and at the same time increase your profile
and earning potential?
By working with Omega, we will provide you with access to the commercial
funding market, building on our experience and in-depth market knowledge
we will ensure that we find the best terms available to meet your clients’
requirements, and in doing so supplement the service you offer and your
income opportunities.
For many years residential mortgages have been providing the foil for the life and pensions
market. Clients need protection when taking on a commitment which for many is going to
be their largest ever financial transaction. However for several years prior to the downturn,
and seemingly again today, individuals have looked to the residential market as an
investment opportunity, with many traditional residential lenders either returning to market
or with increased appetite offering various levels of funding. This may be assessed on a
stand-alone basis but more often than not is still being linked to income multiples. This area
of the market, whilst technically commercial, is still reasonably straightforward to
understand and quite often underwritten on a computer based system, i.e. credit scored.
It is both my experience and that of the team at Omega, having been heavily involved within
the commercial market for many years and having dealt with large numbers of introducers
from the life and pension market, that true commercial mortgage enquiries are often
overlooked or even deliberately avoided. Many times I have heard the comment “well I do
have clients, but the market is too complex or I don’t have the time”. After further
discussion those same people realise the subject of commercial mortgages is not rocket
science and does not have to be avoided – on the contrary, they have found themselves
becoming more involved in the market and reaping the benefits it can offer. After all, most
commercial enquiries are larger in value than the traditional residential mortgage, not to
mention the associated and increased protection cover required.
So what constitutes a commercial mortgage? Omega handled between 430 – 450 new
enquiries each month throughout 2013, across a variety of market sectors including:
Residential Investment – as noted above, many people see this as a safe place to invest their
money, the residential market having increased by 8.4% in the UK (14.9% in the last quarter
of 2013).
This is reflected with the availability of increased gearing levels and interest-only options
available to investors.
Commercial Investment – many clients within an IFA’s database may themselves have, or
know someone who has, a portfolio of units, whether factories, shops or offices, which are
let to either private tenants, SME’s or even large institutions.
Owner-Occupied & Trading Businesses - factories, offices, shops, hotels, pubs, and
restaurants, to name just a few.
80% LTV funding is available in the owner occupied sector (100% for certain professionals),
with the debt structured up to a maximum of 30-year term to help ease cashflow and
serviceability.
Conversions, Refurbishment & Development – we have seen a large increase in the demand
for finance in this sector and with it, so have the finance options available to meet this
demand. The importance here is ensuring the right structure to meet the client’s
requirements and situation, whether an experienced House Builder or undertaking their
first conversion.
Terms can vary here more than in any other sector, therefore it is important to understand
how each lender’s offering is different, not just in pricing, but both in gearing levels and
timing of transaction.
Bridging & Short-term finance – ‘Interest Free’ Bridging options are available through
Omega.
This market has grown exponentially over the last couple of years, with traditional lenders
having introduced additional safety checks, the requirement to complete quickly now
means short-term or bridging finance is required where it wouldn’t have been necessary in
previous years. Bridging though, isn’t only useful for speed, with a greater proportion of
short-term facilities now put in place not due to timing necessity but the flexibility and
commercial view which it also provides.
The commercial market is huge and offers major opportunities. Many of these business
customers will often speak to their Accountant, Solicitor or Bank manager first who may or
may not be able to assist. Due to the many types of business which exist, differences in
clients’ situations, together with the myriad of lenders operating across the different
lending sectors, expert knowledge of the commercial mortgage market is required now
more than ever before, especially if you are to avoid spending too much time on a case,
which cannot be placed easily or indeed at all.
The Commercial Mortgage Market can be a pedantic, fussy and at most times a difficult
market to cater for. If proposals are not prepared in exactly the manner outlined and not
precisely tailored to an institution’s underwriting criteria they can often be rejected, not just
by one but by many. Given the sheer volume of lenders offering commercial and residential
investment mortgages, bridging and development finance, each with their own criteria, it is
clear that expertise and knowledge of the market is crucial. Particularly as you only get one
bite of the cherry and one rejection can automatically disqualify a proposal from being
submitted again to some institutions.
Having said this, in many ways obtaining a mortgage of some sort can be the easy bit, the
difficulty can be getting what is actually required! We work to ensure we tailor the loan to
meet every client’s requirements in every situation and find the best terms available,
whether to maximise loan to valuation proportions or minimise costs, and ensure that any
repayment schedule is safely within the client’s ability and acceptable risk parameters.
To give added value to our clients, we ensure we manage the process beyond credit
approval and work with the client and the lender through to completion, just part of the
reason why we believe we achieve such high conversion levels.
Going to the largest and most obvious lending institution or bank, might get a facility, but it
will not necessarily be the best available and the differences are not always small. In
addition many will try to sell their own financial services products. This obviously creates
another potential hurdle for the IFA, leaving many between the devil and the deep blue sea.
If you avoid becoming involved in this sector of the market you run the risk of someone else
offering an additional service to yours. If you handle the enquiry yourself and look to place
it with a traditional lender, you run the risk of the cross sell and banks offering their own
products.
We are all experienced enough to realise that the key to long term business success is
customer retention. Fact: it takes six times the cost and time to replace a client than to
retain one. By working with Omega, you can avoid these areas of potential customer loss by
being there when your clients’ needs arise, and having the added benefit of knowing that
both we and the lender with which we place the deal, operate with a no-cross sales policy.
This will therefore protect your clients and enhance your core products.
As already mentioned, the commercial market can be complicated. To get the right deal for
the client, you either need to thoroughly know the market and most times the right people
within the lending institution, or link in with an established broker who does. Omega have
been operating for over 20-years, and pride ourselves on building relationships with both
our clients, introducers and the lending institutions. It is through these relationships that we
ensure we get the best terms available for every client, every time.
For more information on how we may be able to help you and your clients, or what is
available in the market today, please contact us by phone, email or through the website on
our online enquiry form.
Mark Jones, Sales Director, Omega Group