The boom years of cheap credit and ever increasing capital values of properties has seen the residential and buy-to-let mortgage sector grow over the past 13 years. This growth has been mirrored in the commercial mortgage marketplace, which has experienced the same strong growth over the past few years. This increased growth has seen an increasing number of financial advisers and residential mortgage brokers to this market and brought them rich rewards for offering these services to their clients.
With the interest in this sector booming, an increasing numbers of specialist packagers sprung up to satisfy the demand of these financial advisers and residential mortgage brokers. This demand also saw a number of traditional residential packagers venture into this sector and offer a commercial packaging service to their clients.
To understand the product is simple. Commercial mortgages are the most commonly applied-for business loans. Like residential mortgages, these loans are used to finance a new property purchase or to refinance a property in order to use capital elsewhere. When assessing a commercial mortgage enquiry there are a various lenders that may take the case forward depending on the type on the background of the borrower(s) behind the application.
Generally commercial mortgage lenders tend to fall into the following sectors:
· Firstly we have prime commercial mortgages. These commercial mortgage enquiries are placed with high street banks or building societies with the borrowers having a clean credit history and accounts to be able to demonstrate serviceability for owner-occupied deals and formal leases in place for commercial investment deals.
· Near prime enquiries tend to be for those borrowers who would normally be placed with a prime lender but cannot take up this option due to either having slight adverse credit or not having the full two to three years’ worth of accounts.
· Self certification lenders do exactly what they say on the tin, and this is also coupled with
· Non-status lenders who base their lending on the security asset rather than the borrower.
With rates swinging wildly between these different types of lender, finding the right one can be difficult. Put that together with the fact that all ask for different key items, have different loan processes and, in fact, many have no set product matrices at all. It can be a maze for the inexperienced broker and thus the need for a packager arises.
Historically business owners went to their own bank for their commercial loan needs. With the emergence of specialist lenders offering alternatives to the banks via higher loan to values, speedier completions and concise and clear pricing, amongst many other factors, has meant that the traditional institutions were not always the most beneficial route.
Many packagers with access to these specialist lenders did and still do pay back the same level of remuneration as if the introducer went direct and thus the financial incentive for an introducer to use a packager who will do the work and underwriting on their behalf is greatly increased.
As all lenders change criteria regularly, some suspending lending or stopping altogether, knowing the marketplace is more crucial than ever. ICE is seeing new entrants on smaller scales appearing in the marketplace using private funds. These smaller niche lenders only want a relatively small piece of the market. This is where packagers really come into play in the current market and ultimately can offer more chance of a successful completion. To add to this, all good packagers should be passing the opportunity to cross sell back to the original introducer who should be able to review a client’s buildings and insurance, key man and life cover policies within a commercial transaction.
Introducers are the lifeline for packagers as they refer deals and the upside for a broker is that a packager can offer a more personal lending experience than large institutions. Working together, the broker/packager will build relationships when necessary, plus support in training and help with marketing is common. What is also usual is an upturn in business referrals as the broker will have a full understanding of what to ask for and of the client’s financing needs. More quality deals are then referred.
Packagers will work with all the different lending sources to give you a selection of the best commercial mortgage deals. With so many lenders all differing in their approach, a lot of time is needed to talk to the sources and to then put together the options for the introducers and clients and lay it out in a simple, easy to understand format. This will include laying out the costs, fees and key items required. The packager will work hard to find the best rates and lending options that to match the client’s needs.
As brokers generally deal across many services and products, looking for ways of securing business, time is often key. But they can quite often get a better deal through their close relationship with a packager and the results produce better options than the broker could get either from its banking contacts or by doing the work themselves.
With all this in mind, choosing to use an independent commercial mortgage packager can prove to be a lucrative option. Less work, more chances of closure, help with marketing, an ally in the industry… Packagers will also collect all the money from the client and the lender. Of course, all this is all offset against slightly less commission but many believe using a packager more than makes up for that.
Business owners with less than perfect credit will also have more success finding a lending provider through a packager as they work closely with lenders that specialise in high risk borrowers. And they can often provide a suitable loan much easier, faster and less costly than a bank. Working together, a commercial mortgage packager can streamline the whole commercial mortgage application process.
In these tough times of economic uncertainty, embracing a specialist packager will ensure that the chances of successfully placing a commercial mortgage case are maximised – whilst introducers maximise their own income streams through focusing on their core business.