At present, only around 15% of commercial mortgages are arranged through intermediaries compared with a massive 60% in the residential market. If brokers could capture even a small proportion of these mortgages it would represent a huge additional income.Why have intermediaries shied away from this sector? Many regard it as a complex and specialist arena which involves substantial amounts of effort and a relatively low success rate. But with the advent of specialist lenders such as Commercial First filling gaps in the products available and increasing competition on rates among the high street banks, the time is right for intermediaries to make real inroads. Why should you spend the time, effort and, let’s face it, money to generate commercial mortgage business? The answer is simple – the potential returns demand it. Consider the following. A typical commercial mortgage will be for around 200,000. Amounts can be much higher, with mortgages of 1m plus not uncommon. Commission levels are also higher than on residential mortgages. A typical full status mortgage will earn you at least 0.5%. Meanwhile, commissions on non status or sub-prime mortgages are even higher and can be as high as 1.5%. So a typical self-cert commercial mortgage of 200,000 will earn you a 3,000 proc fee. And that’s before you consider additional fees you may charge and other add-on earnings. Commercial clients will also all have insurance requirements – key man, pensions, sickness cover. These can more than double the income from a case. Also consider the consequences of not offering your clients advice on commercial mortgages. Their first port of call will normally be their clearing bank, and we all know that bank managers these days try to sell their customers add-ons such as insurance cover. This can put your relationship with your client at risk. If the bank can’t help – a not uncommon occurrence – and you can’t help, they will undoubtedly go to another broker. My advice is simple. Don’t only offer commercial mortgages, go out there and seek them. How? Next week I will look at how to generate commercial mortgage enquiries and what help is available.paul rockett is sales and marketing director at The Business Mortgage Company
Competition for residential mortgages has never been more fierce and proc fees are being squeezed. But there is a largely untapped market out there that is ripe for exploitation - commercial mortgages.