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Rise and shine

Commercial lending The success of the National Association of Commercial Finance Brokers’ awards reveals a sector that is rapidly evolving and growing in innovation, says Mortgages for Business managing director David Whittaker.

As Commercial First sales and marketing director Stephen Johnson stepped up to accept the group’s second award of the evening at the NACFB Annual Dinner and Gala Awards ceremony recently, the frustration of some of its competitors was evident. Not only had Commercial First won Commercial Mortgage Provider of the Year but it had also scooped the industrywide trophy for Specialist Lender of the Year.

The existence of these awards is a tangible measure of the transition that the commercial finance industry is going through and the strong showing of a new start lender -albeit lending for nearly three years – demon-strates the level of opportu-nity and emerging dyna- mism of the whole sector.

Stephen Johnson and his colleagues at the Commercial First HQ in Brentwood would be the first to acknowledge the strengths of their competitors’ offerings.

They too have heard the rumours of lenders moving their tried and tested sub-prime models from the domestic and buy-to-let mortgage sectors into the commercial arena to mimic the successful model that launched Commercial First in late 2002.

It was hardly surprising that Johnson announced the roll-out of Choice in September which extended their range into the near-prime commercial sector, long seen as the preserve of the high-street banks and commercial lending divisions of the building societies. The former woke up to the threat of competition two or three years ago and RBS/NatWest even has “hunter managers” with a clear focus on pulling in new business while developing a clear corporate strategy of intermediary development with specialised groupings such as the National Association of Commercial Finance Brokers.

HSBC has recently declared its intermediary terms will only be granted to NACFB-accredited brokers – a step which clearly recognises that commercial finance intermediation requires an additional skill set beyond the other mortgage sectors.

The specialist lending divisions of the building societies have generally focused on a tighter product range than the banks, with Norwich & Peterborough moving up to 80 per cent LTV on newer-build offices and warehouses in 2004. Norwich & Peterborough now offers a VAT bridge product to offset the unwelcome carry costs of the VAT element on commercial property purchase for anything up to 90 days after completion. Coupled with the first current account commercial mortgage and a package of incentives for “green” business, Robert Lankey at Norwich & Peterborough has justifiably won other awards in the past two years.

Grahame Taylor and his team at Skipton have also won a share of the spoils in recent years, with their use of pricing as a weapon being about as sharp as it gets. A healthy dose of laxative is also applied both to the arrangement and the legal fees, making the Skipton an attractive option on mid-sized transactions where capping fees are not the norm. The bigger property investment transactions continue to be well served by the likes of the West Bromwich, Britannia and Nationwide. The gap in the market brought about by the decline of the finance houses in the late 1990s was filled by the Abbey whose reach now extends beyond business value-based finance into prime commercial mortgages and a willingness to challenge for multi-million pound transactions in sectors where it feels confident. Backed by a strong service proposition and expanded numbers of well trained and motivated field managers, it is no surprise that Mark Stevens has an almost evangelical zeal for spreading the message of choice and service at every opportunity.

The really big-ticket lending that is the preserve of the investment banks with their conduit programs and the specialist divisions of the high-street banks does not often appear in the intermediary market but this sector too is changing as securitisation drives down funding costs.

Securitisation is the key to freeing up competitive pricing but all this expand-ing choice and rapidly changing lending para-meters with price only one element does pose risks for the unwary.

The identification of the lender to finance on a particular type of building to a business trading in a defined sector is the start of the process where factors of loan covenant, the provisions of directors guarantees and the relative merits between dentures and fixed and floating charges add to the advisory process in addition to loan to value, loan term and pricing.

The NACFB is seeking to raise professional standards through its education programme and has teamed up with the IFS to use Cemap as a launchpad to commercial mortgage modules so that IFAs in time can effectively handle commercial finance enquiries. In the interim, many will need the support of specialist commercial packagers. and Andy Young of The Business Mortgage Company, which was a founder member of the NACFB, has seen these trends in the market.

Commoditisation within the commercial mortgage sector is set to expand and improvements to offerings will continue to be driven by specialists such as TBMC. New market entrants and increased product and service innovations in 2006 will keep the sector evolving at a pace undreamed of five years ago.

The concerted drive to increase the knowledge base in the commercial market, as championed by the NACFB, will accelerate the day when business borrowers look to the intermediary sector with the same confidence as they would for their domestic mortgage.

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