How to spot more commercial mortgage enquiries
Michelle Westley (pictured), head of marketing at Brightstar Financial
We often speak to brokers who say that they don’t get enquiries for commercial mortgages. But often, there is an opportunity right in front of them as long as they ask the right questions. Every broker will have some clients who are self-employed and for every homebuyer or remortgagor who runs their own business there is potentially an unmet demand for commercial finance and opportunity to help.
Even if you don’t have experience of commercial lending, working with a specialist distributor, either by referring a case or working together, can help you to access the expertise and products that you need to provide your client with an additional service and diversify your offering.
And, by helping your clients secure commercial finance, you could be helping their business to grow and their personal finances to become stronger, which could in turn increase their appetite for mortgage borrowing in the future.
Taking a holistic approach to your client will also result in improved client retention and word of mouth referrals. So, how can you identify opportunities to help your mortgage clients with their commercial funding requirements?
Here are three questions to include in your fact find with self-employed clients that could lead to commercial mortgage enquiries and increment income for your business.
- “Do you own your business premises and, if not, are you tired of rising rent costs?”
If your clients currently rent the property from which they operate their business, have they ever thought about buying it? Commercial mortgages are available for trading businesses that want to purchase or refinance their own premises. They can cover a variety of property types such as retail units, offices, factory units or any commercial premises used by the business.
The maximum loan amount is normally 75%, but in some circumstances up to 100% may be possible for a selection of professionals or with additional security. Interest rates start from around 2% over the base rate and lender fees from 1%. Repayment loans are typically over 20 years, but interest-only facilities can be arranged. The funds can be borrowed in personal names, limited company, pension fund or trust.
For those clients who do already own their premises, find out when their existing mortgage is due for renewal. The commercial mortgage market is currently very competitive and, by working with the right partner, you could help them to secure a better deal when they refinance.
- “Do you need finance to upgrade machinery or equipment?”
Asset finance is available to help businesses to grow by providing lending for the purchase of company assets, such as tools, equipment, vehicles or furniture. Here are some of the main types of asset finance:
- Hire Purchase
One of the most common types of asset finance, hire purchases enables a business to hire an asset from a leasing company over a set amount of time. Once the payments have all been made, the company owns the asset.
- Finance/ Operating Leasing
This enables a business to use an asset for a fixed period of time in return for regular payments, however the business will not have ownership of the asset at the end of the term.
- Asset Refinance
Asset refinance has become more popular in recent years and can help a business to free up cash by selling assets to a lender and then leasing them back. This provides a cash injection for the business and also lets it retain the use of its assets.
- “Are you looking to increase your property portfolio to include commercial properties?”
Commercial investment mortgages are available to fund commercial or mixed-use properties that are being purchased for rental return and capital gain. Lending can be against any type of commercial property, including offices, shops, industrial units etc.
With the right property, investors in commercial property can earn a good yield on a full repairing lease, with tenants generally tied in for longer periods than a standard AST, so they can have real stability.
The strength of a lease is an important consideration when it comes to a commercial property mortgage, but lenders are becoming more flexible on the types of lease they will allow on commercial properties. Traditionally, high street lenders would want a 5-year lease on a commercial property, with no break clause, but the challenger banks reduced this requirement to two years and some lenders will now allow a rolling a lease, which can make the property more attractive to potential tenants.
Understanding what is required on leases and which lenders will consider different types of lease is one of the most complex elements of commercial property lending and we can help by providing the expertise to identify the most suitable product for a client’s circumstances.
The reality is that your clients probably have multiple funding requirements and, while you may not be an expert in all of those, applying this principle to other areas of lending and partnering with a specialist distributor with multiple areas of expertise can help you to provide your clients with a more holistic service, forge stronger relationships and grow your business.