Remain resilient in the commercial market.

Remain resilient in the commercial market.


Mike Healy, Head of Commercial at CHL Mortgages.

What began as a ‘Credit Crunch’ across the pond has quickly morphed into the funding and liquidity crisis we are all currently confronting. It would be nice to say there are certain areas of the wider mortgage market that are unaffected by the crunch, however, one suspects it’s simply a case that we are all affected, some to a greater degree than others.

Unfortunately, the commercial mortgage market has not been spared and the evidence is all around us of the impact. In a very true sense, the commercial market is simply mirroring what has been happening in the residential sphere. There are a number of commercial market features that have been exacerbated by the crunch, for example, commercial yields have been falling now for some time and, putting a prediction hat on, it is difficult to see any recovery until 2009 at the very earliest.

The pulling of products and the lender withdrawals we have witnessed in the residential market has also affected commercial. With self-cert commercial lenders such as Commercial First having to cease lending, intermediaries are now faced with much less choice available for their clients, especially for those borrowers with a less than prime credit history.

We are also faced with a discernable tightening of criteria by lenders, for example, interest cover ratios have risen and, again like in the residential market, the need for a bigger deposit has become a reality. A 25% deposit from clients is currently the norm in the market. The commercial market has also not been spared the rise in product pricing by lenders active in the market. With the drop in lender and product choice, it is now possible for them to cherry-pick the borrowers they accept in order to maximise the margins and minimise their risk.

Again, the similarities between residential and commercial are clear with the advantage high-street lenders currently have. Given they can use their deposits to fund loans; they are not as reliant on the capital markets to access funding lines as others. However, having said this, intermediaries should be aware that automatically placing business with those on the high-street is not necessarily a certainty. Some high-street lenders will be even fussier about applications than normal and in this sense those alternative lenders who are still active in the marketplace may well see the benefits.

It is perhaps too easy to sit here and dwell on the clear impact that the crunch has had on all our businesses. However, it is not all doom and gloom and the role of the intermediary is still to find solutions for their clients, whatever the market situation. Client demand for commercial finance has not stopped, and some would say, that it is in these times of adversity that the broker truly earns their corn and develops key relationships that will last a lifetime.

For those already established and active as brokers in the commercial market there is a clearly an advantage to be had in using the strength of their long-standing relationships with lenders to source terms and products. Knowing lender criteria and where to place a client comes from spending time in the industry and one would hope that those brokers who fit this category are out there marketing their services and experience.

Newer brokers to the commercial sector will not have years of experience to fall back on, however, in the current climate, diversification is a must and firms must not shy away from any business opportunity at present. Therefore, firms should look to partner up with those commercial lenders who offer a more rounded hand-holding service. Look for lenders who have trained underwriters available to assist with getting the deal onto the books and through to completion. With this type of partnership, brokers working through their first few cases will have assistance and, once the methods and processes are learnt, all following cases will be that much easier to place.

For those looking for a relatively easy entry point into the commercial sector, it might be worthwhile looking at your potential commercial buy-to-let clients. Commercial buy-to-let is very close in ‘feel’ to residential buy-to-let and brokers who have been active in buy-to-let are certainly not going to feel out of their depth with the commercial equivalent. Again, though, firms should not feel they on their own with commercial and there are plenty of lenders, such as CHL Commercial, who will co-operate fully and take them through the full process.

The fundamentals of the current situation are that we are all affected by the Credit Crunch in some way, shape or form. The important aspect for brokers is to continue to market themselves and look for further opportunities in a number of sectors. Commercial is one such avenue that many firms may wish to walk down and there are reasons to be positive: a number of lenders, like CHL Commercial, have money to lend for both commercial and semi-commercial deals and therefore cases can be placed. Firms should use this time to gain information and insight into the commercial sector and actively look for lender partners that are willing to go that extra mile.


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