Making the grade
Fashions in the mortgage market come and go like anywhere else. However, for those able to identify and adapt to the more deep-seated trends in the industry, there is real mileage to be made.
Buy-to-let (BTL) has been one of the big fashions in recent years and personal investors have turned to the market in their droves for numerous reasons. Poorly performing equity stocks and pensions have been well documented and while equities may have recovered much of the ground they lost in recent years, huge worries still remain about the adequacy of state and company pensions as well as the level of investment required to make personal pensions a viable financial option for retirement.
Whether BTL properties remain such a popular investment option for so many people in the years to come remains to be seen. However what is certain is that it has established itself as a mainstream vehicle and even if interest from individuals does decrease, the market will not fall away entirely.
Ripe for investigation
What is more interesting for mortgage brokers is the underlying increase that has taken place in commercial mortgages across the board. BTL is just a small part of the commercial market and its increase has been mirrored by the growth of the commercial market more generally and especially the servicing the small and medium enterprise market. As an avenue for investigation, this part of the commercial market is ripe for exploration and more and more brokers are realising this.
In the same way that numbers of BTL lenders and products have grown, the availability of mortgage finance for small businesses has also soared. New lenders have come into the market and at the smaller and non-conforming end of the lending scale, mortgage applications are increasingly considered on the underlying value of the premises, rather than the viability of the business. This has meant a large number of firms that struggled in the past to secure funding from a clearing bank can now secure mortgages on the premises they need.
As this end of the market has grown, it has begun to represent a bigger share of the overall commercial market, although in value it is still dwarfed by the larger ticket funding deals that are in place. However, for brokers the crucial point is that the amount of commercial mortgages going through the intermediary channel is rising steadily. In 1995, figures from the National Association of Commercial Finance Brokers (NACFB) showed only 5 per cent of commercial mortgages were arranged through brokers. The industry body now believes this is closer to 15 per cent.
Such a steady increase would suggest that this is a trend brokers should really be paying attention to. Not all will want to make a shift into this market and may be running successful and thriving residential operations. However as a potential area for expansion, the commercial market looks to be more than just the fashionable place to be. One of the things that has always been difficult about entering a new market, is getting hold of the right expertise, knowledge and training.
To date there has been little to speak of in terms of formal training and qualifications for the commercial market, but this year has seen changes introduced. The Institute of Financial Services (ifs), in conjunction with the NACFB, launched the Certificate in Commercial Mortgages (CeCM) in the Spring. Since the qualification became available, well over 300 brokers have taken the exam and demand remains high. Not only is this an indication of the demand among brokers to get involved, but also of the demand for structured training.
The certificate aims to give brokers an understanding of the advice process, the market for commercial mortgages and related solutions, the common types of finance, the regulatory and legal framework, the types of mortgage solutions and the criteria for determining their suitability and affordability.
For the first time, independent training bodies specialising in the commercial market are also starting up and so brokers interested in getting involved have access to formal, structured training without having to feel their own way in the dark.
In turn this means that brokers can take time to assess the opportunities that the commercial market could offer them and then begin to match that with the specific training they would need.
Gearing your offering
The other problem that exists in entering a new market is creating demand for it. Many residential brokers may worry that their set up and marketing is not geared to attract commercial clients. However if most were to analyse their existing client base, it is more than likely that a large proportion will either be self-employed or individuals working in an influential position for small and medium enterprises. As such both are perfectly placed to benefit from commercial mortgage advice.
Expanding and diversifying a business is never easy and for firms prepared to make the jump it is important they consider doing it early enough to make the most of the possible opportunities. Such a move will have its difficulties, but now dedicated training is on offer and readily available, one problem at least has been taken care of.