As we go into the third quarter of the year, banks are continuing to keep a tight leash on their wallets when lending to commercial property investments. The Bank of England reported that lending to commercial property was just £713 million in the second quarter of the year.
A total of £189 billion was borrowed for real estate purposes as compared to June last year which lent £244 billion, a drop of 23 per cent. Borrowing has also decreased, but this could be explained by the amount of hoops applicants must now jump through to obtain a commercial mortgage on a property, as John Topping, Managing Director of Sangton Limited said, “I had to put together a full forecast and business plan.” He also went onto say, “Before getting the mortgage I also had to prove we could get the premises licensed as it hadn’t been a pub before, get the planning permission required for the refurbishment, and have a full valuation done.” Sangton Limited runs a small chain of leased pubs, but needed a commercial mortgage to move the business forward.
Obtaining a commercial mortgage is not a quick process, as Mr. Topping found. It took him 18 months to secure the mortgage, and nothing is expected to change anytime soon as Jeremy Handley, Director of Valuation Advisory expressed, “Future lending for the rest of the year is expected to remain constrained, even if interest rates are held at their current low level.”
Not only is obtaining a commercial mortgage time consuming for applicants, but it is becoming increasingly risky as many applicants are now using their personal property as a guarantee. As a result of this, if you hit hard financial times not only could you lose your business, but you could also lose your home as well.
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