From the recent recession, a wide range of new commercial mortgages have surfaced, with the key aim of stimulating the credit-crunched commercial property market.
These products are aimed at owner-occupied businesses and investors and are designed to reduce pressure on cash flow by offering flexible repayment options, with a less stringent qualifying criteria. The products were made available in England and Wales at the start of April and are expected to generate particular interest from SMEs seeking to purchase, or refinance, existing commercial property investments.
Some of the new commercial property mortgages offer advances of up to £750,000, with interest-only and full or partial capital repayment options. One product, on the market since 6 April, has interest-only options of up to 65% loan to market value, with part-capital repayment options for advances above this.
The launch of these new products will be welcomed by a commercial property sector hit hard by restrictions on finance. Bank of England figures, released in February 2011, showed the largest drop in commercial property lending since 1987, down £16bn to £221bn between September and December 2010. The number of commercial property lenders has also fallen, seriously affecting the options for potential new entrants to the commercial property market.
Jones Lang LaSalle’s 2011 Lenders’ Expectations report, a survey of key lenders servicing commercial property real estate, found that refinancing will be the dominant force until 2012, when the market is expected to improve. Respondents estimate 70–80% of lending will be centred on refinancing. And Andrew Hawkins, lead director at Jones Lang La Salle, stated that ‘borrowers with strong existing relationships are well placed to access the lending markets. Whilst, although not impossible for new entrants, the challenges are still there’.
Those seeking finance for commercial property ventures will be hoping that the new products on the mortgage market will be a help in overcoming the many challenges they face.
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