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Cheap money anyone?

A traditional business bank takes up the fight on encroaching challenger banks resulting in some competitive commercial mortgages. Even buy to let landlords want a piece of the action, as Andy Elley explains.

October is always an interesting time of year for business banks. Commercial mortgage activity tends to pick up with both lenders and borrowers busy.

The lenders want a slice of the action mostly likely because they are making sure that they are on track to hit their year-end lending targets.

Borrowers are back from holidays eager to put investment plans into action. I reckon time spent on a sun-lounger, beer in hand is the perfect strategy planning environment. After all, no one makes a return on savings these days and inflation is rapidly watering down landlords’ net worth.

Some of our buy to let landlord clients are starting to steer away from traditional residential rental investment acquisitions. As you are no doubt aware, this is because of a multitude of different reasons including:

  • The restriction of income tax relief on buy to let mortgage interest
  • Rising property prices
  • Shortage of quality stock
  • Stamp duty levy on purchases of additional property
  • Changes to buy to let mortgage regulation

Many of these clients have started to look at commercial investment opportunities, dipping their toes in and starting with properties like lock-up units and mixed use premises, typically shops or offices with flats above (all owned on a single freehold). And why not? Yields from these investments can often be higher than traditional buy to lets; just take a look at the latest Complex Buy to Let Index which reveals that semi-commercial properties averaged gross yields of 7.8% over the last 12 months compared to standard BTLs which generated an average of 5.6%.

But it’s not only the buy to let landlords who are moving into the commercial space. We’ve seen a growing presence among the challenger who have been expanding lending propositions and loan to values. Their interest rates and arrangement fees have reduced significantly and their charges have a competitive edge, particularly where investors require high loan to value facilities. In some cases, the mainstream business banks have been losing significant business levels, particularly because the challenger banks offer interest only commercial mortgage facilities to fit in with the majority of borrowers’ investment strategies!

The main business banks have really had to fight for their slice of the pie and they have funds to lend from their balance sheets! After all they are the banks that pay virtually zero for savings so why can’t they lend money to make the returns!

Really low commercial mortgage rates
Anyhow, let’s cut to the chase, one of the main business banks has fallen significantly short of its 2017 commercial mortgage lending target and so it has taken the fight back to the challenger banks. The development managers have been told to get their acts together and find some new lending propositions!

Clearly this is good news for property investors. This business bank is now offering some great terms for commercial investment mortgages:

  • Loans between £500,000 and £1,000,000
  • Interest only facilities
  • Rates from 2.55% – 2.85% over Bank Rate
  • Up to 60% LTV
  • Lender arrangement fees between 1% and 1.5% depending on the borrowing required. 

Yes, the bank will need solid investment propositions and will steer clear of properties with short leases, or investments within the restaurant and leisure sectors. Loan to value at above 60% will still be a struggle but for seasoned investors either refinancing lowly geared, high yielding properties or purchasing new commercial investment property, the time to finance is now!

I estimate the offer will be available until December 2017, after all the lender needs a flying start to their completions for early 2018! 

Next steps for commercial property investors
So, if you have your eye on a commercial property and need finance, give me a call to talk through the options. As always, I can be contacted directly on 01732 471644 or you can call the mainline - 0345 345 6788 - and ask for the Commercial Desk.

Next steps for mortgage brokers
If you’re a broker looking for help in placing these types of deals, I can help too! Call me to discuss on 01732 471644 and remember, your client remains your client! Or call the Deal Placement Desk on 0345 148 928.