Commercial mortgage brokers arrange loans secured on commercial property. They use their market knowledge to ensure customers receive the best deal available on their commercial mortgage. A commercial mortgage broker will be aware of prevailing market conditions, the existence of niche lenders, and the preferences of each lender for different types of borrower. They can draw on pre-existing relationships to find the most appropriate lender given their customer’s circumstances and will negotiate with lenders on the customer’s behalf.
Once an appropriate lender is selected, the broker will assist the borrower through the application process, which can be more complex than for a residential mortgage. This could include assistance in completing forms, ensuring the application is well supported by the necessary paperwork, and documents are prepared, signed and delivered on time. They will also provide guidance on potential issues with an application, often before they arise, and suggest ways to avoid or mitigate them.
Why do I need a commercial mortgage broker?
The commercial property market is far more diverse than its residential equivalent. The range of land use encompassed by the term ‘commercial property’ is extensive. Commercial real estate can range from hotels to shops, offices to factories, residential complexes to schools, as well as many more niche uses such as hospitals and cinemas.
This diversity means that different property types may be affected very differently by social and economic events. Consider how different commercial properties could be impacted by trends such as an increase in violent crime locally. High street shops and leisure venues might be severely affected, whereas the impact on the value of a factory could be limited.
In addition, the UK commercial mortgage market is much less consolidated than the residential equivalent, which is dominated by the larger banks and building societies. While the major high street banks do have commercial lending divisions, they tend to be more focused on the much higher volume residential market, as well as the premium end of the commercial market.
By contrast, in the commercial market, there are many lenders specialised in different market niches. This fragmentation is encouraged by the fact that both the value of the property itself, and the ability of the borrower to afford the loan, is much more complex to assess than for a normal residential mortgage. Simple rules such as fixed limits on lending as a multiple of income, are not available. As a result, many commercial lenders specialise in narrow sub-sectors of the market – such as leisure and entertainment property in the North East, or office space in the East Midlands.
Are commercial mortgage brokers regulated?
A common misconception is that commercial mortgage brokers in the UK are not regulated by the Financial Conduct Authority (FCA). This likely stems from the fact that commercial mortgages themselves are not regulated products (with some exceptions under PERG 4.4 of the FCA handbook). While this is true, a commercial mortgage broker acts as a credit broker, by facilitating introduction of the borrower to the lender. All credit broking is a regulated function, and the broker will need to ensure they are FCA regulated.
In addition, the industry has a large degree of self-supervision via the National Association of Commercial Finance Brokers (NACFB), a trade body. NACFB ensures that brokers comply with minimum professional standards, and many lenders will not work with non-NACFB accredited brokers. These standards include being FCA regulated, properly registered, having professional indemnity insurance, proper record-keeping facilities, the existence of a professional culture, and controls to stop miss-selling.
While a large part of the value of a mortgage broker derives from peace of mind and assistance through the application process, a broker will also be able to help the buyer navigate the market complexity we discussed above. When combined with the considerable expense of commercial property transactions, this can make a good mortgage broker an essential component for the informed buyer.
You can find the best-rated brokers in our commercial mortgage broker directory.