COMMERCIAL MORTGAGES

Pa nellists: Gareth Anderson, head of business management at Allica Bank; Miranda Khadr, founder of Provide Finance; and Tom Simpson, MD at YBS Commercial Mortgages

5. Plenty of government financial support is available— but not for all SMEs

A primary point being discussed during the commercial panel is the financial support available to SMEs through government-backed schemes, such as CBILS and RLS. While Miranda emphasises that multiple lenders are still offering these loans, she points out there are several misunderstandings around this topic.

“I think anyone who's had a CBILS [facility] thinks they can't have a RLS [product]. You also have people who don't understand that there are loans out there for non-Covid affected businesses, and the list goes on,” she elaborates.

However, she notes there is a lack of government stimulus tailored to individual sectors, particularly for the hospitality industry, which has been severely affected by Covid-19 and is still feeling the aftermath. “Certain sectors, like hospitality, have been far worse hit—partly because of the economic crisis we’re currently in and the energy costs—and they’re simply left high and dry. I think we've got to put pressure on the forces that can make these changes [to provide] individualised sector help for each group of businesses.”

6. Fixed-rate commercial mortgages are here to stay

As the UK economy is experiencing volatility, with Bank of England base rate rises affecting all areas of the financial sector, the panellists weigh in on the popularity of fixed-rate commercial mortgages compared to variable-rate loans. Both Gareth and Tom note that borrowers are increasingly opting for fixed-rate facilities—however, Tom states that this does vary depending on the commercial market segment.

“About 75–80% of our commercial mortgages last year and this year are fixed, and I don't see that changing any time soon,” says Gareth. “We might start to see that dynamic shifting if the Bank of England pauses rate rises for, let’s say, a two- or three-month period, which might give people a view that direction of travel is changing and thus give them confidence to opt for a variable rate, but I don't see it changing in the immediate term.”

7. Care homes are a big opportunity

While some areas of the commercial market have been particularly hit by macroeconomic factors, others, such as healthcare and care homes, have been more fortunate. Gareth reports that Allica Bank has seen a 50% surge in the flow of healthcare deals over the past 18 months; according to him, the main catalysts for this are the ageing population and a “critical shortage of beds”.

“What we find really interesting is that every GP who's stumbled out of practice has decided the best way to retire and create a pension is to invest in a care home. We're starting to see more professional single operators who have proven their mettle on one care home, earning the right to go and look at a second and a third,” he continues.

When asked about the information brokers need to provide to lenders for these types of deals, Gareth says that understanding a borrower’s background and business plan is essential, particularly when assessing deals from less experienced care home operators.

Miranda highlights that, unlike other markets, the healthcare and care home sectors are regulated by the Care Quality Commission and its reports may make or break a commercial finance deal. “Anything that's got a ‘requiring improvement’ rating on its last inspection may cause an issue with regard to finding funding for it,” she adds. “Another key thing is that a lot of these lenders don't work off a typical EBITDA model; they'll work off what cashflow is available for debt servicing, and some of them would like to see you in a contract to fix your utility costs for a period of time due to energy inflation.”