August’s IPD UK Monthly Property Index revealed that commercial property values in the UK rose, continuing their upward trajectory over 15 consecutive months. Outperforming other asset classes, such as equities and bonds, commercial property rose by 1.1 percent in July, with industrial property and offices seeing the largest returns.
This popularity in commercial property as an investment opportunity is evident in the Northern Home Counties (Hertfordshire, Buckinghamshire, Bedfordshire, Essex) and East Anglia (Norfolk, Suffolk, Cambridgeshire). This is particularly true in Cambridge and Stevenage thanks to their science/technology parks, and in places such as St Albans, Hatfield and Welwyn Garden City which have plenty of offices and retail units as well as pleasant residential areas. This makes them ideal places for investors to build a portfolio containing both residential and commercial properties, the latter running the gamut from office space to pubs, restaurants to guesthouses.
However, despite the growth of commercial investment in the region, market values haven’t returned as much compared to those for residential investment. We work with a real mix of borrowers in the area and their activity is by no means confined to commercial investments. There are plenty of semi-commercial properties in the high streets of the larger towns, many of which are commuter settlements, while Norfolk and Ipswich are focal areas for clients investing in trading businesses.
Residential investment
Aside from commercial property, the region sees a very high level of residential investment, particularly in the Northern Home Counties. Professional landlords dominate the landscape, and our repeat borrowers typically tend to invest in resi property. Some investors have gone from not having a relationship with Shawbrook to borrowing up to £4million.Those applying for large loans tend to hail from the Hertfordshire-London border and often look to refinance to enable them to quickly purchase another property using cash or a short-term loan (STL).
In Luton (Beds) and Hemel Hempstead (Herts) we’re seeing high levels of investment in HMOs which are very much flavour of the month. They’re a popular investment opportunity because clients can obtain better returns than on a typical buy-to-let (BTL). A clear trend is medium-sized landlords switching their portfolios to include HMOs or become more HMO-focused. Although we do deal with investors with multiple portfolios of around £4-5million in the region, large loans tend to remain under £2million as investors look to purchase or refinance small blocks of flats rather than the huge blocks more typical of London.
The broker network
The variety of investment opportunities in the Northern Home Counties and East Anglia mean that Shawbrook’s full range of commercial mortgage products are in demand. We have a strong broker network in the region; some specialise in a particular area, such as STLs, while others do a bit of everything. We’ve worked on many deals with Karl Griggs from Commercial Processing Centre in Bushey, James Hardwick from Charleston Financial Services in Hemel Hempstead, Simon Purdom at Commercial Financial Services in Ipswich, Lucy Hodge at Vantage Finance in Gerrards Cross and Stephen Mettler at Enterprise Finance in Borehamwood; all have been of a very high quality. Short-term loans are a market set to grow in the region, and the demand for semi-commercial investment is also getting bigger.
Buy-to-lets and refinancing
We see many small BTLs or refinances which don’t fit with mainstream lenders, partly due to some high street banks putting a cap on the LTI ratio for BTL investors, or restricting the number of properties an investor can have in their portfolio. Another key aspect is speed – high street lenders are taking longer to refinance resi refurbishment loans as they don’t want to take the risk on the higher value until typically a six-month time period has elapsed. However, if a client purchases a property using an STL, carries out a refurb and then wants to take a longer term BTL mortgage, a specialist bank can get the refinance underway as soon as the works are completed and the property is let. We’re definitely seeing more resi investment deals coming our way because of the way we can handle a tight timeframe and our greater appetite to lend to landlords. Clients looking to refinance larger portfolios from high street lenders are also common as we offer interest-only rates and greater flexibility.
The marketplace in this region is established; the investors are experienced and tend to have a broker they use to build their portfolios. But financing is still difficult for resi landlords unless they use the broker channel. If they don’t, they won’t know about all the available funding options, and may be unaware of options beyond the high street lenders. As a specialist bank, we want to change people’s perceptions; get them to look further afield for finance and look for quality in an intermediary.
