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Commercial Watch: What is all the fuss about?

Jane Simpson TBMC 2016

Little has changed in the sector since the referendum, with most funders’ appetites undiminished and competitive prices

I want to use this article to counter some of the myths that have built up around commercial finance, in particular the portents of doom arising since the referendum result.

I will start with what we have seen in the funding market:

  • The stabilisation of the challenger bank market and the improved cost of funds in that sector by way of various methods, resulting in improved pricing models
  • Continued growth of new-entrant lenders, including peer-to-peer and cashflow funders, providing a further widening of the range of finance types available, and
  • More mainstream lenders reacting to increased competition with improved terms, although not necessarily with a demonstrably increased appetite, particularly in real estate and perceived higher-risk sectors.

Now, turning to what we have seen in terms of the types and levels of funding request:

  • Traditional commercial mortgage funding for SMEs continues to increase organically
  • A steady rise in requests for development finance since January 2013
  • Continued demand for investment property funding, and
  • A continued increase in the quality of enquiries received.

And what has driven these trends?

  • An overall increase in SME confidence, at least until the UK’s EU referendum
  • Changes in planning laws. Permitted development has had a material impact
  • A continued shortage of housing stock, and
  • Increased foreign investment in the UK.

Some may see an implication that things have changed since the referendum result and, while there have been many surveys on business and consumer confidence since that date, hard evidence to support the results is largely yet to be seen. Further time needs to elapse before we can determine those facts for sure.

What I can tell you about the commercial funding market is that very little has actually changed, particularly across the mainstream and challenger bank landscapes. Most funders’ appetites remain undiminished and, if anything, pricing continues to be pretty competitive, with at least a few telling us they will not be beaten on rate.

This means that we are still arranging commercial mortgages up to and occasionally beyond 80 per cent funding, investment property of all types at 75 per cent including non-standard residential, and development finance up to 90 per cent of all costs (certain project types and sizes can be funded to 100 per cent with an equity share).

In terms of pricing, we have seen recent investment loans as low as 2.6 per cent over Bank base rate, commercial mortgages at rates a little lower than that, and development finance as low as 4.75 per cent over base rate. A few non-high street lenders are now offering a pre-agreed fixed rate for the development term, giving a degree of certainty on profit margin for developers.

So UK lenders remain very much open for business in the commercial sector.

We envisage competition driving down price and maintaining gearing levels, along with the lowest UK Bank base rate ever and robust lender appetites to continue lending.

Jane Simpson is managing director at TBMC

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