Liz Syms

Commercial: high street vs challenger banks




Just like BTL and residential mortgages, in the main, commercial lenders are split into two key types: high street lenders, often offering the lowest rates, and challenger banks, often referred to as specialist lenders, with more flexible criteria.

When presented with a new enquiry from a client who wishes to purchase a commercial property, who are the lenders you would look to approach first: high street or challenger/specialist?

Before reaching that decision, advisers should be asking a few key questions.
  
The first is regarding the occupation of the property: will it be occupied by the applicant’s own business? If so, this is called a trading business commercial loan. If the applicant plans to let the property to a third party, this is known as a commercial investment loan.
  
While all lender types will consider both, the underwriting criteria may differ. For example, it is rare for a high street lender to consider a loan for a start-up trading business, as the applicants will have no trading history. However, lenders such as Together, from the specialist sector, will consider start-up businesses.
  
The next questions should relate to the client’s expectations relating to the monthly costs. High street lenders typically only offer repayment mortgages. They may offer an initial interest-only period, but this is usually only for up to two years. Challengers, however, will consider offering up to 10 years interest only as standard.
  
How much your client wishes to borrow can also be a factor. The high street can win here with trading businesses.

For BTL advisers looking to diversify into new markets, commercial is a good opportunity. A commercial investment mortgage is just like a BTL mortgage, except the tenant is a business rather than an individual and the equivalent of the assured shorthold tenancy (AST) is for a longer term.
  
BTL landlords have started considering commercial investment property to diversify their portfolios. A semi-commercial property, for example, a flat above a shop on the same legal title, is a similar proposition to their BTLs. The additional advantage comes from stamp duty savings and the ability to fully offset their mortgage interest before paying tax, even if the property is held in a personal name.
  
Working with clients who have businesses can also create other opportunities, such as assisting the client with both cash flow and business growth finance.
  
There are more and more resources, such as webinars and training sessions, available to advisers. Using these resources mean advisers can expand their knowledge and help more clients in this increasingly popular market.

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