By Gary Hemming, ABC Finance
Knowledge of the commercial mortgage market can be crucial for business owners, but there isn’t a great amount of information online.
With many business owners lacking knowledge on this crucial area, we are going to break down exactly what commercial mortgages are, how they work and give you some of the key points to consider before applying.
Most people are familiar with residential mortgages, so we will use them as a reference throughout the article to make things easier to understand.
Commercial mortgage uses
It’s easy to assume that as residential mortgages are for residential properties, commercial mortgages are for commercial properties. This is only partly true.
Commercial mortgages are usually used to raise finance against commercial property, but they can actually be used to finance a wide range of properties. Other potentially suitable properties include homes with equestrian facilities, large rental properties (such as entire blocks of apartments) and even land with no attached buildings.
Commercial mortgages are generally arranged for one of 2 purposes, to purchase a property to trade from or to be let out as an investment, much like a residential buy to let. They are available for both new purchases or remortgages, again much like residential mortgages.
Commercial mortgage lenders
There are numerous commercial mortgage lenders out there, the main types are as follows:
High street banks will usually offer the lowest interest rates but tend to have strict criteria. This can make securing a commercial mortgage from a high street bank tricky and the process is often slow.
When taking a commercial mortgage from a high street bank, they may want you to switch your business banking to them, to allow them to keep track of the account.
Finally, as they tend to have the tightest criteria, you may well find that you can borrow less through a high-street bank than through the other types of lender.
Challenger banks tend to be more flexible in their approach. This means that they are likely to offer a more straightforward application process, higher loan to values and will not insist on you moving your banking.
There is a price to pay for this increased flexibility and that comes in the form of higher interest rates. As competition increases in the market, the gap is closing, but the lowest rates are still to be found on the high street.
Some of the more specialist lenders tend to be lesser known but focus heavily on a highly flexible approach. Applications tend to be assessed on a case by case basis, most properties can be considered and can be completed quickly where needed.
There are two major downsides to this increased flexibility and that comes in the form of a lower loan to values and higher interest rates.
Key points to consider before taking out a commercial mortgage
Taking on a commercial mortgage, especially for the first time is a big decision and as such, it’s important that you get it right. Before applying, there a few key points that you must consider.
Fixed rates vs variable rates
Fixed rates offer more stability as you can be sure that your monthly repayments will remain the same throughout the fixed rate period. Most lenders will offer both fixed and variable rates.
Variable rates will tend to be slightly lower to start with, although they could increase at any time.
There is a decision to make before you apply as to whether your focus is on the cheapest product initially, or stability of knowing that your rate won’t increase. You should always make sure that the mortgage is not just affordable now, but also in the future.
Interest only vs capital repayment
Capital repayment mortgages see you pay off the loan over the course of the term, much like a personal loan. This gives you the certainty that the loan will be fully repaid as long as you make each payment on time and in full.
Interest only mortgages only require you to pay only the interest on the amount owed each month. This means that your monthly costs are lower, but you will still owe the same amount at the end of the term.
Broker vs direct to the lender
A good commercial mortgage broker will be able to access the whole market and will work on your behalf to secure you the cheapest possible deal.
As commercial mortgages tend to be for large amounts of money, even a small reduction in the rate charged can represent a significant saving over the term of the loan.
The downside to this is that some (but not all) brokers will charge a fee for their service, which can potentially cut into the savings made.
When you work directly with a lender, they will only offer their own products, meaning that you could miss out on a potentially cheaper deal elsewhere. You could check with multiple lenders to find the best deal, but this could get very time consuming and not all lenders will deal directly with the public.
Five things shaping Britain’s financial rulebooks after Brexit
By Huw Jones
LONDON (Reuters) – Britain is conducting a review of its financial rulebooks and policies to see how it can keep its 130 billion pound ($184 billion) finance sector competitive after Brexit left it largely cut off from the European Union.
The government is due to issue papers in the coming days outlining its approach to financial technology (fintech) and capital markets, while further down the line it’s expected to propose changes to the funds and insurance sectors.
Here are five things set to shape the City of London financial hub following its loss of access to the EU:
BIG BANG DEBATE
Britain’s finance ministry is reviewing financial regulation and insurance capital rules, with minister Rishi Sunak raising the prospect of a “Big Bang 2.0” to maintain the City’s competitiveness, a reference to liberalisation of trading in the 1980s.
But it’s unclear how far any deregulation could go given that Britain says it won’t undermine global standards.
UK Finance, a banking body, wants a formal remit for regulators to ditch rules that put them at a competitive disadvantage globally. Insurers want cuts in capital requirements to free up cash for green and long term investments.
But the Bank of England says the City must not become an “anything goes” financial centre, and that insurers hold the right amount of capital.
Cross-border firms want to avoid Britain diverging from international norms as this would add to compliance costs.
City veterans say Britain should focus on allowing firms to hire globally, and ensuring that regulators respond nimbly and proportionately to crypto-assets, sustainable finance, long-term investing and restructurings after COVID-19.
COPYING NEW YORK
London has fallen behind New York in attracting company flotations and a government-backed review of listing rules is likely to recommend allowing “dual class” shares and a lower “free float”, perhaps for a limited period.
Dual class shares are stocks in the same company with different voting rights, while “free float” refers to the proportion of a company’s shares that are publicly available.
The potential changes could attract more tech and fintech companies whose founders typically want to retain a large degree of control.
It could also recommend making it easier for special purpose acquisition companies (SPACs) – businesses that raise money on stock markets to buy other companies – an area in which New York has also dominated, with Amsterdam catching up fast.
UK asset managers warn that strong corporate governance standards could be diluted by tinkering with listing rules.
Britain is home to one of the world’s biggest innovative fintech sectors, its “sandboxes” – which allow fintech firms to test new products on real consumers under regulatory supervision – copied across the world. But Brexit means Britain has to work harder to attract and retain fintechs as they will no longer have direct access to the world’s biggest trading area.
A government-backed review to buttress the sector is due to report back on Friday with recommendations that could include cutting red tape for fintechs that want to recruit staff from across the world, and make listing in Britain more attractive.
Other ideas could include helping fledgling fintech navigate government departments and regulators more easily, along with ways of boosting funding for start-ups.
FUNDS ARE THE FUTURE
Britain is reviewing how to make itself a more competitive place for listing investment funds, a core tool for bringing fresh capital into markets.
UK-based asset managers run many funds listed in the EU, but this global system of cross-border management known as delegation could be tightened up by the bloc.
Having more funds listed in Britain would also mean that the shares they hold would be traded in London. Billions of euros in trading euro shares have left the UK for Amsterdam since Brexit due to the bloc’s restrictions on where funds can trade shares.
As the City will get only limited access at best to the EU, industry officials say it makes more sense to focus on getting better access to other markets like Singapore, Hong Kong, Japan and the United States, while at the same time keeping the UK financial market open to the world, including the EU.
Negotiations between Britain and Switzerland for a “mutual recognition” deal in financial rules is the way to go, industry officials say. Better global access would also keep the City ahead of EU centres like Amsterdam, Paris and Frankfurt.
($1 = 0.7056 pounds)
(Reporting by Huw Jones. Editing by Mark Potter)
How the Brexit Agreement Failed the Financial Services Sector
By Steve Taklalsingh, MD UK Business, Amaiz
Over the Valentine’s weekend, it was announced that during January, the first month that the new Brexit-related changes came into force, Amsterdam overtook London as the largest financial trading centre in Europe. Approximately €9.2bn (£8.1bn) worth of shares were traded on Amsterdam’s exchanges each day in January, against €8.6bn in London. How did that happen and why is Brexit to blame?
The Brexit deal for the Financial Sector
The Christmas Eve Brexit agreement delivered an unfair market for UK companies in the Financial Services Sector. The deal meant we were left in a situation where EU-based banks wanting to buy European shares cannot trade via London. EU shares that were previously traded in the UK have moved to the EU on advice of the European regulator. In addition, EU FinTech companies can operate in the UK but, as ‘equivalence’ (agreeing to recognise each other’s regulations) has not been agreed, our FinTech companies cannot now operate in the EU. You can already see evidence of EU companies, particularly those based in Amsterdam and Germany, eyeing up the UK market.
As a sector we’ve never been shy of boasting about our 12% contribution to the UK’s GDP. FinTech, in particular, has been a UK success story. This vibrant scene is looked on with some envy and I’m very proud to be part of it. Internationally, having a foothold in this market, and a London address, was the aspiration of financial services companies who wanted to be taken seriously, but not anymore.
Action to solve the market distortion
The Bank of England chief Andrew Bailey has warned that there are signs that the EU plans to cut off the UK from its financial markets and has urged them not to do so. The indications are that the Government is aware of the ‘problem’ but doesn’t appear to see the clear urgency in resolving it. It has been reported that there are ongoing talks to harmonise rules over financial regulations (equivalence) and that they’re working towards a March deadline.
Number 10 has said they are open to discussions on the equivalence issue and claims that the Government has ‘supplied the necessary paperwork’ and boasts of the UK’s strong regulatory system. It lays the fault of delay firmly at the doorstep of the EU: “Fragmentation of share trading across financial centres is in no one’s interest.” I’m disappointed that they’re not, in public, recognising the seriousness of the situation.
Research on the impact of Brexit
At Amaiz we have worked hard to understand the implications of Brexit. At the beginning of December we carried out research which focussed on the impact on financial services. The report, Brexit Brink: Are British SMEs about to fall off the edge of Europe – or building new bridges? is based on a survey of SMEs across the UK and you can download it free from www.https://journal.amaiz.com/amaiz-guide/. Our findings gave us valuable insight into the deal that was needed for Financial Services.
Most companies had been preparing for Brexit for some years. Whilst there were some that hoped and campaigned for the referendum result to be overturned, that seemed unlikely. The results of our research in December showed that people were as ready as they could be:
- Nearly half (49.2%) of company decision makers had reviewed new regulations set to take force on 1 January 2021 (if there was a no deal Brexit) and made changes to ensure their companies would meet them.
- Only 17% of companies said they had failed to prepare.
The changes that company leaders believed would have the most impact were those to regulations (37.4% of respondents said this was a concern), increased costs of doing business (37.2%), and reduced access to suppliers (35.5%). Overall, 57% of companies believed that Brexit would have a negative impact on their business, and some (6.6%) believed it would destroy their business.
The research found that larger companies were more prepared for Brexit than smaller ones. That’s likely to due to their ability to devote resources to solving the challenges Brexit presents. Those employing between 1 and 10 people were most concerned about increased costs (45.7%) and those with between 11 and 50 employees about taxes and VAT (41.3%).
Larger companies in Financial Services prepared for Brexit by registering companies and offices within the EU so that they could continue trading there. This acted as a fail-safe solution that avoided issues, whether a deal was struck or not, and whatever the nature of that deal. Smaller companies don’t have the resources to do this; they could not open another office on the off chance that they would need it, so Brexit put them in a more vulnerable position.
Impact on the economy
Of course, Brexit came at a time when we were all trying to manage the devastating impact of the pandemic. The FCA (Financial Conduct Authority) and FSB (Federation of Small Business) both published figures in January that show the terrible impact of the pandemic on SMEs in the UK. The FCA found that 59% of smaller financial firms expected that their profits would take a hit this year. The FSB found that nearly 5% of smaller companies expect to be forced to close within 12 months, the largest proportion in the history of the Small Business Index and would mean that 295,000 companies will close this year.
A plea to the Government
The Government has worked hard to find ways to help small businesses survive the pandemic in order to save jobs. The economy is experiencing an unprecedented recession, with all hopes laid on a swift bounce back as soon as lock down ends. Until then we are in ‘war’ mode. However, helping businesses survive is not just about handing out cash. What the Financial Services Sector urgently needs is a fair regulatory framework and marketplace in which UK business can operate. Instead, the Government has allowed distortions that continue to damage one of the country’s key sectors – one that can drive us out of recession – and appear laid back about resolving the situation!
Bitcoin tumbles 17% as doubts grow over valuations
By Tom Wilson and Tom Westbrook
LONDON/SINGAPORE (Reuters) – Bitcoin tumbled 17% on Tuesday, sparking a sell-off across cryptocurrency markets as investors grew nervous at sky-high valuations and leveraged players took profit.
The world’s biggest cryptocurrency suffered its biggest daily drop in a month, falling as low $45,000. Bitcoin was last down 11.3% at 0939 GMT.
The drop extended a slump of nearly a fifth from a record high of $58,354 hit on Sunday – though bitcoin remains up around 60% for the year.
“The kinds of rallies we’ve been seeing aren’t sustainable and just invite pullbacks like this,” said Craig Erlam, senior market analyst at OANDA.
Ether, the world’s second largest cryptocurrency by market capitalisation that often moves in tandem with bitcoin, also dropped more than 17% and last bought $1,461, down almost 30% from last week’s record peak.
Cryptocurrency markets have been running hot this year as big money managers and companies begin to take the emerging asset class seriously, piling money into the sector and driving confidence among small-time speculators.
A $1.5 billion investment in the crytocurrency by electric carmaker Tesla this month has helped vault bitcoin above $50,000 but may now lead to pressure on the company’s stock price as it has become sensitive to movements in bitcoin.
Rising government bond yields over recent days have hit riskier assets, spilling over into leveraged bitcoin markets, said Richard Galvin of crypto fund Digital Asset Capital Management.
“Markets were quite hit from a leverage perspective so that didn’t help,” he added.
U.S. Treasury Secretary Janet Yellen, who has flagged the need to regulate cryptocurrencies more closely, also said on Monday that bitcoin is extremely inefficient at conducting transactions and is a highly speculative asset.
Critics say the cryptocurrency’s high volatility is among reasons that it has so far failed to gain widespread traction as a means of payment.
Analysts said key price levels have played a large part in determining the direction of crypto markets.
“Because we’re so lacking in fundamentals, it’s the big figures that have proved to be support and resistance points,” said Michael McCarthy, chief strategist at brokerage CMC Markets in Sydney.
“$50,000, $40,000 and $30,000 are the key chart levels at the moment. If we see it heading through $50,000, selling could accelerate.”
(Reporting by Tom Westbrook; Editing by Jacqueline Wong and Nick Macfie)
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