It’s become increasingly evident that business owners looking for a new commercial mortgage/re-mortgage are completely dumbfounded by the rates and terms that the market currently offers. Here I’m going to explain why that’s wrong, what rates/terms you can get, and that it is not all doom and gloom!
Was it really a boom?
Unfortunately, the rates offered in the boom time of 2000-2007 were essentially false, and loss leaders. Why? Because the whole boom was false, bought on inflated debt that no-one could really afford.
This period was fuelled by inflated share values, cheap credit available on items that were unaffordable (how many people bought cars on credit they could not afford?). It was also coupled with the reduction in value of average wages during the same period, which means we were buying way beyond our means.
Teaser Rates for Commercial Mortgages
Many businesses were lured by the same cheap credit, with a select few banks giving what were really teaser rates at around 1% or 1.5% over base, and sadly many business owners believe this should be what they pay.
These were loss leaders: teaser products to entice businesses, on the basis that you would not leave in 5 years time when the rates started going up. They have a point, as many won’t. All banks are the same aren’t they? Not necessarily…
Rates in 2015
It is possible to get more competitive rates, but at a rate that is more realistic, not just for a recession but in general.
The question to ask is if you were going to lend money, would you lend it cheaply to poorly planned, speculative businesses? No. But many banks did in the “boom” years on the basis of general economic well being.
A realistic rate for a good business in 2015 is between 3% and 4% over base (0.5% at the time of writing), over a term of 15-20 years, with 5-year rate reviews (covenant or profitability based).
LTVs are from 60% for investments, 80% for owner-occupied properties, and believe it or not, you can get 100% LTVs for GP Surgeries and Veterinary Practices over 25 years! Dentists are not far behind on 90%.
So whilst rates have gone up (compared to teaser loss leaders), it is still possible to reduce your newly increased rate by shopping around, a practice which can result in a profit.
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About Chris Davidson
Chris Davidson is Managing Director of Discover & Invest Ltd.
He believes passionately in providing businesses with market-leading financial insights that have a positive impact on the bottom line. As a result, Chris helps get the best rates and terms available at any one time.