The Rent Review Specialist
No room for Doubt
29/04/2016
The stability of the commercial property market, indeed the property market as a whole, depends upon finance, the management of large amounts of money. Actually, it is not so much the stability that would not survive without regular injections, but the For further reading, please visit LandlordZone.
Mortgage and Loan
01/01/2014
Even if they start by using cash, many purchasers are concerned with the cost of financing property. In my experience, they can often be more concerned with finance than the value of the proposition. This situation typically arises when property is offered at a high yield, compared with interest rates, but not high enough when measured on (traditional) investment criteria.
Depending on lending criteria, that may range from stringent to lax depending the lender's policy at the time, commercial mortgages can usually be obtained for between 40-70% of capital value, provided the cost of repaying the mortgage is covered by the rental income.
When a mortgage based on the value of the investment, as distinct from the property, and if the investment value has gone up, it may be possible to remortgage.
Where a rent is subject to early review or the tenancy to expiry (reversion), mortgagees will normally lend only by reference to the rent passing, but subject to the borrower's other resources and the relationship with the lender, it may be possible to extract extra funds in anticipation of the level of increase and its immediate effect on capital value. Once the new rent is established, it may then be possible to re-mortgage so as to release further equity.
The source of finance is important. Since the price of shop property can be substantial and may be beyond the reach of cash buyers, where would the money come from to fuel demand for shop property investments?
The answer is there is plenty of money about. You only have to look at the turnover figures for retailers and other businesses to realise how many GBP billions are in circulation. The criteria for bank lending is judicious choice of borrower. By lending (more) to fewer borrowers, the banks are doing what all forward-thinking businesses have been doing for years: moving away from the mass-market catering for everyone and concentrating on the more profitable customers/borrowers.
The amount of funds and facilities for borrowing determines flexibility. Income can be used to finance mortgage, capital can be released for buying a second investment and so on. If you do not want to borrow, then your purchase would be limited to your own resources, the price range and/or required initial yield, in which case decisions can be harder for fear that something better might turn up. The more you have to invest, the more flexible you can be. Even so, successful investment in shop property is not about spreading the risk, but buying wisely.
A wise investment is one that performs through thick and thin. Property performance is a measure of confidence. At any time the value of a shop investment is what other investors in the market at that time would pay, but how the value is calculated depends upon the terms and provisions of the tenancy and that depends upon the tenant’s agreement or if a dispute has to be resolved then the tenant’s conduct in the aftermath.
Depending on lending criteria, that may range from stringent to lax depending the lender's policy at the time, commercial mortgages can usually be obtained for between 40-70% of capital value, provided the cost of repaying the mortgage is covered by the rental income.
When a mortgage based on the value of the investment, as distinct from the property, and if the investment value has gone up, it may be possible to remortgage.
Where a rent is subject to early review or the tenancy to expiry (reversion), mortgagees will normally lend only by reference to the rent passing, but subject to the borrower's other resources and the relationship with the lender, it may be possible to extract extra funds in anticipation of the level of increase and its immediate effect on capital value. Once the new rent is established, it may then be possible to re-mortgage so as to release further equity.
The source of finance is important. Since the price of shop property can be substantial and may be beyond the reach of cash buyers, where would the money come from to fuel demand for shop property investments?
The answer is there is plenty of money about. You only have to look at the turnover figures for retailers and other businesses to realise how many GBP billions are in circulation. The criteria for bank lending is judicious choice of borrower. By lending (more) to fewer borrowers, the banks are doing what all forward-thinking businesses have been doing for years: moving away from the mass-market catering for everyone and concentrating on the more profitable customers/borrowers.
The amount of funds and facilities for borrowing determines flexibility. Income can be used to finance mortgage, capital can be released for buying a second investment and so on. If you do not want to borrow, then your purchase would be limited to your own resources, the price range and/or required initial yield, in which case decisions can be harder for fear that something better might turn up. The more you have to invest, the more flexible you can be. Even so, successful investment in shop property is not about spreading the risk, but buying wisely.
A wise investment is one that performs through thick and thin. Property performance is a measure of confidence. At any time the value of a shop investment is what other investors in the market at that time would pay, but how the value is calculated depends upon the terms and provisions of the tenancy and that depends upon the tenant’s agreement or if a dispute has to be resolved then the tenant’s conduct in the aftermath.