The Government’s Autumn Budget continues to draw plenty of annoyance over higher national insurance for business and bigger Inheritance Tax (IHT) liabilities for farmers, led front and centre by Jeremy Clarkson.
But among the finer details was some infrastructure funding news to cheer commercial developers. The National Association of Commercial Finance Brokers (NACFB) picked out the extended allowances for zero-emission cars and electric vehicle infrastructure as noteworthy for its finance broker membership.
The rise in Stamp Duty Land Tax from 3% to 5% for second homes did little to show support for the private rental sector (PRS) or small-scale landlord.
But the exit of some from the market will be an opportunity for others and this will only fuel many landlords’ drives to look for finance to refurbish, work their assets harder, or turn to the semi-commercial or commercial sector for growth.
This Government’s stated intention to invest for growth, including £70bn of investment through the National Wealth Fund, means more development opportunities or at least rising confidence is expected next year.
Capitalising on rising confidence
So, residential brokers may see more appetite from landlord clients for semi-commercial and commercial deals as they look to diversify residential portfolios and attract higher returns.
From a risk management perspective it makes little sense to have all your eggs in one basket, when a rate change can have so much impact.
Residential remains a solid market, and the surprise 3.7% house price inflation figure for November was spectacular, but it always makes sense to have a diverse portfolio.Â
When residential is the only market a landlord knows, a move to semi-commercial as an intermediate stage, like a shop with two flats above it, might be more comfortable than full commercial.
Over time, landlords can look to repeat the asset purchase once they have learnt how to make a short-term refinance and development work for them. For that same landlord looking to expand a portfolio, a fully-commercial deal will make sense, as they gain expertise and establish another niche for themselves.
The role of the broker
Brokers get their time to shine when it comes to helping clients expand and diversify.
As a lender, we offer plenty of counsel and a market view on potential opportunities. The diverse nature of the live deals on our books, spanning everything from electric vehicle (EV) parks to assisted living schemes, warehousing and distribution centres, gives us a strong sense of viable deals in this market.
We can help offer brokers the toolkit and launchpad to go off and research this market and start to establish tax advisory partnerships and other networks to help establish themselves. The business advice on any deal should always come from an array of different sources.
Shaping the deal
For a broker used to the residential side, providing the business case for a deal and then a variety of planned exits for the short-term finance is critical.
In a refurbishment deal agreed recently, the investor converted a poorly performing hotel into an assisted living facility. The broker had experience of placing that kind of business and the landlord had an affiliation with the local authority.
So, one exit option for the landlord was to run it themselves, or second option, bring in longstanding care providers as tenants to run the business for them while the client remained a landlord. The third scenario allowed the client to sell the property as a complete asset to a care provider or local authority.Â
By examining these options, I could sit with the broker and look at three or four potential exit term products that might fit, depending on the strength of the contracts with the various care providers. The questions will always be ‘who’s going to buy it?’ or ‘Who’s going to provide the term finance for it after this deal finishes?’
Another possibility is alternative use, so I asked the broker what else it could be used for if the initial plans fall through. That’s a question the broker ought to be able to help his client with.
In this climate, brokers should be able to demonstrate their worth to clients and business acumen will be key. All brokers need to show why they’re a better bet than the broker around the corner.
It’s also helpful to be able to offer access to a suite of professionals, from estate agents to accountants or tax and insurance advisers. That way you’re in a really strong position to build your client bank.
So in a quickly developing world, it pays in every sense to diversify as a broker and forge the knowledge and relationships to position yourself to embrace semi-commercial and commercial deals.
As a lender, we’re open to discussions on everything. For a broker, 2025 could be the year to open the door to those rich opportunities.
Jaxon Stevens is relationship director at ASG Finance
