There has recently been a flurry of activity by new start-up specialist commercial mortgage lenders, and speculation is mounting around residential lenders entering the commercial market. How will they fare and how will they differentiate themselves?
Our reaction is that we are proud of what we have achieved with our intermediary partners in the commercial market, and it is testament to our success that other lenders are now keen to participate in this sector. It would however be wrong to see this as a completely new trend, as there have been other specialists and even institutional lenders recently entering the commercial market.
The encouraging signs for brokers are that much of this activity appears to be focusing upon intermediary distribution. This is a real shift in the market, and is almost a complete u-turn from the time at which we entered the sector back in 2002. At that time our analysis of the market demonstrated a preference for the institutional lenders, with some notable exceptions, to deal directly with clients and not through brokers at all.
Heart of the matter
Our strategy from day one was to put the broker at the heart of our business model, believing they were the proven channel for the distribution of mortgage products.
This is a very positive trend and brokers now appear to be driving forward this market, and significantly it is a combination of three factors that appear to be making this shift happen. Firstly, we have begun to see the emergence of larger, specialist commercial brokers, who have begun to build broader distribution strategies and invest more in the marketing and processing resource to support their business model.
Secondly, it is evident that IFAs, residential mortgage and secured loan brokers are having a greater participation in the market. Thirdly, and perhaps most telling, is the number of strategic partnerships that are being formed between residential brokers and the specialists. This is combining the ability to generate client enquiries with the expertise required to convert them into completed transactions – and is proving to be a winning formula.
Increased profile
We are particularly positive about this last development and see it as great news for ourselves and intermediaries. Competition will inevitably drive product and process innovation, which in itself will enable brokers to deliver even greater service to business customers. This should further increase the level of intermediary involvement in the sector as customers recognise the service benefits of using a professional broker to source and case manage their commercial mortgage finance.
A number of specialist residential lenders also appear to be keen to add a commercial offering to their product mix. It will be interesting to see how they manage to add what is fundamentally a very different proposition to existing residential processes and systems. This speculation has been widespread with a growing number of names mentioned, so it will be interesting to see who publicly makes the first commitment. Many commentators have observed that growing competition in the residential mortgage market may lead to this diversification, although conversely such competition may mean it is difficult to deliver the necessary investment of time and resource that brokers will demand.
With regard to the set-up of new specialist lenders it will be interesting to see where they position themselves in the market place, their resources, how they are funded and what origination levels are required to make it viable.
Stephen Johnson is sales and marketing director at Commercial First Ltd
