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SPECIAL FEATURE: Commercial lending comeback

Mortgage Introducer

September 14, 2015

After a tough few years, we’re seeing the return of commercial property investment delivering consistent returns across a number of indices and performance indicators. Commercial and semi-commercial property is making a comeback and, it looks like it’s here to stay. With confidence returning, lenders are using their new found liquidity to widen their products and the flexibility of underwriting when looking at commercial cases. While investors, developers and commercial landlords are buying in to established businesses and a more diverse range of property types.

The new-found popularity of commercial property can be seen in recent reports on number and value of sales, as well as the fact it remains as popular as ever with foreign investors buying in to the UK market. It also remains popular in the property auction rooms too as high yields are proving attractive to commercial landlords.

One key example is city centre office space as investors and landlords are snapping up offices to sell or rent to businesses looking to expand or relocate. Prices are increasing as the available space dwindles.

However, all this activity needs funding and we’re seeing lenders step in to deliver the finance for a wide range of needs. Commercial loans are useful for long-term investments and exiting other loans, such as bridging finance, after the property is acquired. It’s also useful for a wide range or premises in varied states of condition – from the executive office suite that just needs to have furniture added, to a retail site that needs completely renovating. If the property is in poor repair, then loans are often provided in stages and released as the building works are done.

Often when landlords or companies purchase property in need of upgrading they also look at changing the sites use, or part of its use. This could include converting the premises from one asset class to another, if allowed under planning, but also looking to get a second income stream from the same site by sectioning off part for another use. A typical example of this is retail premises with accommodation above. When purchased the flat above may be directly linked to the shop, restaurant etc. However, by creating a separate entrance for the flat above, the landlord creates two viable units for rent.

But for a commercial loan, clients still need a good business plan and this will be reviewed by the lender. So check popularity of that type of business or property in the area, future returns and ongoing costs. All will help the lender to make a faster and more informed decision for your clients.

For ready-made going concerns such as hotels, equestrian centres, nurseries, rental shops and industrial units, commercial lending is increasingly available for buyers looking to invest in new ventures. And with renewed confidence in the economy, lenders and brokers have an opportunity to capitalise on this commercial finance comeback.


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