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The seven truths about commercial mortgages

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7th Jun 2013
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You will have read yesterday about further reductions in net bank lending, despite the various government incentives to fund growth. While there is some reluctance to lend in certain cases, our experience shows that “the banks aren’t lending” line simply isn’t true, explains Chris Davidson.

The problem is not that banks are not lending, it is that there is new information and a new process that is not widely reported. As a result, business owners do not have an accurate, nor current, picture of the real changes that have occurred. What is actually happening, believe it or not, is far more encouraging than the mainstream media make out. 

There are seven significant pieces of information that accountants can use to help their business clients either secure a commercial mortgage, or re-mortgage onto better terms, contributing to better financial performance:

  1. Understand which businesses banks will lend to. The major problem area is start-ups, when angel investment funding is available aplenty. Solid businesses with at least two years accounts looking to buy an asset, or have assets to re-finance, are very fundable
  2. In general, state-owned banks are not lending, whereas private banks, and some new foreign entrants, are.  State-owned banks are liquidating mortgages to pay back the taxpayer, and cannot authorise many new cases
  3. Debt serviceability ratios are, in many cases, back to pre-recession levels at 1.5, down from 2.5.  So if a business can service 1.5 times the monthly repayment, they are in a strong position for a loan sanction
  4. Solid businesses can get between 2.5% and 3% over base for 15-25 years still.  Owner-occupiers can get 80% LTV, and 100% mortgages still exist for great businesses like GPs and veterinary practices
  5. Contrary to media reports, the Funds for Lending Scheme, if applied correctly, has helped a number of businesses in 2013. The problems are that some banks have not applied the scheme effectively, and are, in the main, the state-owned banks
  6. As a result of the scheme, it is now possible to profit from the process of moving mortgage. This is achieved because the total costs (bank arrangement, legal and valuation fees) are less than the scheme cash back received. It is a myth that this is a costly process
  7. How a business approaches a bank has changed. The skill-sets have moved from the high street branch to area and regional contacts, typically accessible through brokers only. Banks are increasingly using brokers to handle enquiries for them.  One should be able to use a non-fee charging broker who gets your application looked at quickly and efficiently and does not add cost to the purchase chain

So if you have clients with problematic commercial mortgages, or simply looking to get on the ladder, the news is much better than is being reported.

 

Chris Davidson is a partner at Sheridan Financial Services. To find out more, download Sheridan’s free Commercial Mortgages Report 2013.

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