What advice would you have for a broker looking to move into the commercial space?
Commercial mortgages can be financially very rewarding, but being successful in this industry requires dedication and time, a lot of time. Commercial mortgages can take anywhere from four weeks to over six months to complete, depending on each case. Unlike residential, commercial applications are assessed on a case-by-case basis, meaning upfront fact-finding and due diligence is required for every client – as well as a lot more paperwork! This also means the quality of a broker’s packaging can make all the difference. Every application is unique and the tick-box approach used with residential mortgages no longer applies.
My golden piece of advice for prospective commercial brokers is to work with a specialist broker for your first few completions. Shadowing a specialist throughout the transaction will give you an idea of the process and help you decide whether it’s right for your business to take on the responsibility of packaging directly, or to continue to work as an introducer.
What challenges do introducers face when dealing with HMOs, and what has Shawbrook done to help combat these?
I think the main challenge professionals face when dealing with HMOs is understanding the asset type from the outset. There are a number of factors which can determine whether a property can be classed as an HMO, for example: What works have been completed? Is there an Article 4 Directive in place? How many rooms are there? Does the client have the correct planning and licensing? These considerations can make understanding the different types of HMO particularly complex; especially when it comes to determining what value lenders will work from.
At Shawbrook we recently undertook a project with the objective to provide improved clarity to both introducers and clients on our valuation methodology, in order to help the market understand how we value HMOs.
Through our research we discovered the majority of confusion arises around the value applied to a single dwelling with minimal works, which is being used as an HMO. Whilst this property may currently generate more income than a standard private dwelling, if it was sold on the open market, it is unlikely the seller would achieve a premium sale price based on the rental income because theoretically, a savvy investor could just as easily buy the house next door for a lower price and complete the works themselves. Therefore, we have clarified that with such cases Shawbrook will lend on the value of the property as a private dwelling.
By contrast, properties considered as specialist HMOs (where structural changes mean they must be utilised as an HMO) we will lend against its investment value as an HMO, subject to sufficient demand on the open market.
Shawbrook has spent a lot of time and effort defining the different types of HMO, and as a result, we’ve produced a set of guidelines to help our partners identify and value HMOs according to our methodology. We welcome anyone requiring further information to visit our website or call our sales team.
What do you foresee for the next 12 months in commercial lending, now that the General Election is out of the way?
Over the next 12 months I expect to see continued growth within the commercial lending sector, although perhaps not at the same rate we saw in 2013/2014. The specialist BTL market continues to expand, whilst commercial property values are still rising, aiding sustained growth across the market.
Short-term lending has seen something of a surge in popularity recently; why do you think brokers are beginning to see the potential in STL?
I think bridging and short term lending has grown in popularity because more people are looking to take advantage of property opportunities quickly. The market’s reputation has improved and with various challenger banks now servicing this space, STLs are a viable way to source the funding you need in the right amount of time.
What is one thing brokers might not know about Shawbrook Bank?
The sheer size of the Shawbrook team;
-Within our commercial division alone we have 82 staff members who are all responsible, directly or indirectly for supporting our brokers and their clients’ applications.
-We have over 25 mandated lending managers who are always available on the phone to discuss any opportunity.
- We also have 12 experienced sales members based out on the road full-time throughout the country.
