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Commercial break

IFS head of faculty financial regulation Mark Roberts says brokers should take a look at the commercial property market and be willing to gain the qualifications to reap the rewards

There can be few areas of the financial services market which have had the wind at their back for quite so long as the mortgage sector and despite a current slowdown in house prices, rises over the last decade have provided the bedrock for a massive increase in mortgage business.

While the conditions in the property market have been favourable, other encour-agement has also come from a number of economic and demographic factors and fanned the market’s flames further. The pension industry has been in crisis and investors have turned to the buy-to-let market in their thousands both as nesteggs for the future and as shorter-term ventures.

Struggling to meet their financial obligations, the ageing population is also turning to the value locked up in their properties and the equity-release market is starting to realise some of the huge potential it has promised for so many years. The growth in lenders offering overseas mortgages and the advent of cheap air travel has also meant borrowers are increasingly able to buy abroad and millions now own property across Europe.

All these situations have worked in the favour of the mortgage broking comm-unity and as mortgages have become more sophisticated and able to deal with the huge demand that has come from the borrowing public, so brokers and lenders alike have been able to do good and, in some cases, great business.

But such opportunity has brought with it competition and a squeeze on the margins available. As more providers enter the sub-prime, overseas, equity release and buy-to-let markets, the potential fees for each case have fallen. While borrowers have made the most of it, brokers have needed to grow volumes to remain stationary. Regul-ation has also brought extra cost to the market and made it difficult for firms to focus purely on new business in the last 18 months.

This is not to say conditions do not remain very good in the market but only to point out there have been, and remain, clouds on the horizon which need to be watched.

The firms that have best mined the rich seem of business available in the mortgage market over the past decade have been those prepared to meet changing demands in terms of product, service and delivery. This has meant getting to grips with new technologies, forging improved relationships with lending partners and keeping abreast of evolving products. It has come at a cost but been repaid in full by those who have made the commitment.

Looking to the future, brokers in the residential market must realise that the wind cannot stay at their back for ever and will have to change at some stage. Whether interest rates begin to creep, property begins to dive or jobs begin to go, the forecast will not always be sunny. It is imperative that firms not only take everything on offer while they can but also look to future opportunities so they can continue to enjoy good fortunes when circumstances in the market change.

Traditionally, the distinction between the sub-prime and mainstream markets was very clear and rarely crossed by broker or lender alike. This is no longer the case and the boundaries have become blurred. No longer does this distinction stop at the boundaries of the residential market either as brokers look to work across both commercial and residential clients.

Buy-to-let remains a commercial product and yet many have done very well from the sector even though it has not been their speciality. Those who have not considered the potential that the commercial market could bring should look to do so now and develop their client offering.

How many of your clients run their own business? How many have a mortgage on their commercial premises? How many have been advised on how to use the property in their business to its best effect in terms of the capital it could yield and the help it could provide to the cash flow of the business? How many have looked at going into BTL or thought of going into the pub or restaurant business? It is not uncom-mon for commercial insur-ance brokers to offer personal lines products to clients as an extra revenue stream and likewise residential mortgage brokers should start to examine the commercial opportunities that some residential clients present.

Access to products in the commercial mortgage market is excellent and for those doing it seriously, one or two clients making one or two referrals in the commercial market could make any downturn in the residential market a lot easier to bear. As with any sector, knowledge is key to offering the correct service to clients and giving them the confidence to let you do the job in the first place. As qualifications have been brought to market for lifetime mortgages so similar plans are afoot in the commercial market.

If by availing themselves of better knowledge in the small commercial arena brokers can open the door to a wider set of clients, provide more to some of their existing clients and create another stream of revenue, the time spent in getting to grips with such learning must surely be worth it.

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