Call it by a different name but I think we all know that we are talking about arranging to borrow enough money to purchase or re-mortgage a Commercial property, which could be freehold or leasehold.
The demand for Commercial property seems unabated despite the doom and gloom which the credit crunch has forced upon us in the residential market. Anyone going to an auction will experience the buzz of excitement from the investors when certain properties are put up for sale with a good tenant on a long term commercial lease.
Further investigation shows that many of these properties have been sold with out the benefit of an inspection by the prospective purchaser. Such is the attraction of a strong covenant from a recognized tenant even where the rental income offers a yield of between 4-5% as a return. The long term potential capital growth, added to an almost guaranteed income stream, has proved to be a strong attraction for investors in commercial property. These high rollers must be cash rich because the rental incomes do not offer the ability to service a mortgage even at 75% loan to value, so long term is good for these investors. This should however leave the normal business man, who wants to buy for his own occupation, a much clearer field in which to operate and where bargains maybe found.
The smaller investor who wants to add balance to his investment portfolio by adding a commercial property to his current buy to let properties is in a good position to take advantage of current market trends. Lenders like investment properties at the right loan to value, normally not more than 80%, and where the mortgage interest is serviced by an acceptable margin.
Another popular purchase is a shop with living accommodation, where the flat above the shop is let on a six month short tenancy generating income to offset mortgage repayments. Light industrial units again lend themselves to clients renting off part of the space which they may need at a later date, but can be used to generate income now.
So has the credit crunch impacted on the commercial mortgage market? The answer yes it has, but not to the same degree as in the residential market. Most Independent Financial Advisers would have seen the lenders tighten up on the underwriting criteria and the margin that we have come to expect on certain deals over Bank of England base rate have move slowly upwards, but with out making the waves that we have come to expect in the residential market. Thank God we are not seeing products pulled overnight, or to be told that we have 24 hours to get the case in fully packaged.
The Commercial Property market still offers a good long term investment and at the moment the market is strong and competitive. I will just mention the residential market as many of the clients who are now trying to buy were not around in the late 1980?s and early 1990?s when property last suffered a real drop in value. History tells us that property values have increased in value by 100% every 20 years despite any falls in between. In recent times we have seen property values double in the last ten years and this massive rise has tended to price out the first time buyers and encourage the investors to pile into what many saw as a never ending income stream.
At some stage in this circle there has to be a correction and it has taken a lot of our first time investors by surprise who never thought the gravy train would have to hit the buffers at some stage. The message is stay strong, hold onto your property and the market will come back as it always does and if you have any spare money buy now while property prices are low.
?Fortune favours the brave?
Michael Alexander is an expert in mortgage finance and business loans for commercial clients.
http://www.acommercialmortgage4you.co.uk/
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