In the short-term there are going to be some rocky times ahead in the Commercial Mortgage arena. However, looking further ahead the picture looks quite interesting with competition likely to drive rates down and force lenders to be innovative in their commercial mortgage pricing.
We have moved on from a market dominated by the high-street banks, 5 years ago it would have been near impossible for a start-up business to purchase commercial property to trade from. There are now several intermediate lenders looking to provide funds for a variety of commercial projects. For the last 5 years companies such as Commercial First have dominated the “self-cert” commercial mortgage market, and they have achieved this by providing outstanding service levels and taking care of their introductory sources (i.e. brokers).
More recently there have been several new entrants to the commercial mortgage market, 5D Finance and Interbay to name just two. These new lenders are looking to take market share from Commercial First and other fringe lenders like Abbey Commercial. Whilst it is going to prove to be difficult to compete on interest rate in the short term, there are other factors which can become competitive selling points.
Firstly consider arrangement fees. Some lenders have been charging up to 2% (with broker fees on top) whilst banks typically charge between 0.5% and 1% depending on the quality of the deal. Cynical marketing tricks to look out for would be a lender offering 0% arrangement fees, but hiding interest guarantees or other penalties in the small print.
Early Repayment Charges have also become part of the marketing mix with lenders and brokers boasting about quite small differences. The quantum difference is between the prime lenders who will often only charge one month’s interest and other lenders charging 6% in the first year.
All this is before on even considers the range of product type; discount rate, variable, fixed, etc. all of which offer lenders the opportunity to recoup costs relinquished elsewhere.
The point here is that it has never become more important to approach an established commercial finance broker when considering a commercial mortgage for a purchase or refinance.