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Commercial breaks

Commercial finance Philip Scott examines the growing interest in the commercial finance sector

The National Association of Commercial Finance Brokers has seen its membership grow dramatically since it was formed in 1992, when it consisted of just three patrons and six members. Today, it has 60 patrons and around 1,000 individual members. Former NACFB chief executive (now consultant at the group) Keith Heron says around 15 per cent of new business is made up of commercial specialists.

Brokers now comprise15 per cent of the market, according to NACFB figures, compared with around 5 per cent in the early 1990s.

Commercial property prices are expected to rise by up to 14 per cent by the end of this year so why aren’t more brokers in the sector?

Heron says: “There is an element of the fear of the unknown. It is a far more complicated business than the residential market and getting it wrong can have serious repercussions.”

He says some brokers have had their fingers burnt and there was a lot of fee fraud in the 1990s but he points out that the NACFB has exposed these practices.

Regulation, however, is not something that would be welcomed by the NACFB. At present, the FSA has no consultation process or any examination of the sector.

Heron feels that in the short to medium term, regulation is not likely. He says: “Self-regulation is the way forward. Regulation comes about because there are problems in the market.

“The cost would be high and we believe it would be very difficult to regulate commercial finance as every deal can differ greatly.”

The NACFB has had a code of conduct since 1994 and over the next 12 months the organisation plans to carry out random audits of its members.

Heron says the NACFB receives few serious complaints. “It is just queries in regard to the way that brokers operate – issues on fees and so on. There are serious incidents, but they do not happen very often. We have expelled around 12 members for serious misconduct since the organisation began,” he says.

The Institute of Financial Services says interest in the commercial mortgage sector is on the rise, with many residential mortgage brokers looking to add business. But the popularity is not on the same scale as the interest in lifetime mortgages, says the IFS.

London & Country Mortgages head of communications David Hollingworth says: “We refer any commercial mortgage leads to a specialist. We do not want to move away from our specialist area which is residential.

“Commercial mortgages can be very time-consuming and more complicated and the range can be enormous although we do not have many enquiries into this area.”

Brian Alcock & Associates partner David Cope is studying to specialise in commercial mortgages. The business operates mainly in residential with the commercial side making up around 10 per cent.

Cope believes claims of over-complication in the commercial sector are exaggerated. He says: “It is as complicated as you want it to be. If some advisers do not get the proper docum-entation from day one then it can get very complicated.

Mortgages for Business managing director David Whittaker says the sector is going through a period of development and notes that new players such as Interbay entering the non-conforming commercial finance sector but the market itself is not growing at all.

He says: “What is happening is that the commercial mortgage market is loosening up. There is better access to the commercial mortgage market which clearly is better for advisers.”

Heron believes there is going to be a gradual growth in the commercial market. He says: “Because it is a non-regulated sector, it is a way for brokers to offset some of the costs that their regulated business brings and that is a serious attraction. With a 200,000 deal, a broker could be looking at a 1 per cent proc fee.”


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