YBS Commercial Mortgages | YBS
YBS Commercial Mortgages has implemented some positive changes to its buy-to-let offering this week, providing much-needed support for landlords.
Following broker feedback, the commercial lender has reduced the stress rate applied to buy-to-let affordability calculations on its commercial buy-to-let products. The positive change effectively increases the volume of lending that can be provided to borrowers. The stress rate has been reduced from 125% Interest Rate Cover (or Interest Cover Ratio - ICR) at pay rate plus 0.30%, to stressing at 125% ICR at pay rate (pay rate is interest rate on the loan). This move recognises the reality faced by UK landlords who face a challenging interest rate environment, as well as ongoing economic headwinds.
These changes are designed to support landlords in areas where rents are lower relative to property value, taking into account the costs faced by landlords. The change will increase what they can borrow, subject to remaining within the lender’s 75% loan-to-value (LTV) criteria. This will enable landlords to borrow more on these properties, freeing up capital to invest, or to undertake property maintenance. For example, for each £1 million of assets, based on a yield of 4% (rental income of £40,000 per year), assuming a five-year fix at 5.60%, landlords will be able to borrow around 5.5% or £30,000 more.
Tom Simpson, managing director of YBS Commercial Mortgages, said: “We understand the role that landlords play in providing much needed, quality rented accommodation, which in the current climate, are in short supply.
“We hope that reducing our stress rate – which is another example of how we continue to respond to broker feedback - will provide the support that their landlord clients need, improving their ability to borrow more in the current, more challenging interest rate environment.
“As a responsible lender, focussed on the importance of high-quality accommodation, these changes will also benefit tenants, as more landlords have access to our product suite.”
ENDS – CMPR03-24
Tom Simpson, managing director of YBS Commercial Mortgages – the commercial lending arm of Yorkshire Building Society
Don’t let the scrapped HS2 line be all the North is known for – investment in the region can come in many guises. Now is the time to prove its worth, and many are already seeing the potential.
High streets in many towns and cities have faced a challenging decade; the most recent years posing the toughest hurdles yet thanks to the headwinds caused by the pandemic, the spike in energy prices and the ensuing knock-on effect on the wider economy. For some it’s been unsustainable, with big-name casualties in the retail sector, as well as numerous smaller businesses sadly closing for good, but for others it’s provided opportunity.
The rising interest rate environment afforded many commercial property investors a period of time to take stock; to reconsider their portfolios and to consider what’s most important to them. In some cases, this has meant diversifying their assets to spread risk, for example.
Focus on energy efficiency
This trend towards energy efficiency also explains why some owners are still struggling to let or sell older office blocks and other, lower-quality property. However, we’re definitely seeing a surge of interest in prime workspaces, as businesses seek to make their surroundings more attractive to employees – not just when it comes to energy efficiency - but also in terms of more collaborative workspaces, in keeping with heightened expectations post-pandemic.
Leeds is well-regarded as a financial services hub, as well as a home for media and technology-based firms, and, although there’s no doubt that investment in these has slowed down since the COVID-19 pandemic, the bottom line is that office space – despite the onslaught of home, or hybrid, working – continues to attract investment – as long as it’s the right type of property with the right features.
The wider view
The data we monitor and market insight from our team on the ground tells us there is opportunity even in sectors which have struggled. For example, retail footfall recovery in Leeds and Manchester is better than in London. Warehousing is also proving an attractive option, as demand for online shopping continues to drive quality builds along key transport links including the M62 and M1. Industrial property, too, remains in demand thanks to limited supply.
As for us – as a lender we’ve seen year-on-year commercial property approvals rise 150% and, since we fully launched YBS Commercial Mortgages in 2020, we’ve backed investments in the North to the tune of £100 million. We’re similarly committed to our North regional team to support this, creating jobs in the region - indeed, a recent recruitment drive has doubled the team. We’re plugged into the market, speaking to brokers and investors daily, and it’s clear they’re still as interested in the region as we are.
The future
As for investors taking advantage now, while property prices are slightly lower, they may benefit in the longer term, leading to improved capital-raising potential as the value of their investment increases.
There’s no reason to suggest the short-term outlook will change much; it will remain a challenge in some sectors while providing great opportunity in others. The fact the North has proved its resounding resilience during such challenging years - and we are continuing to see growth all around us - rightly paves the way for renewed optimism.
As for the scrapped HS2 line from Birmingham to Manchester – transport and infrastructure investment is vital to help grow the Northern economy, attract investment and talent, and will help us to achieve our net zero ambitions as a country – one for the government to consider further as we move into 2024.
So, long may the country continue to watch the North - for all the right reasons.
CMPR 11-23
Time is certainly flying in 2023 - and it’s hard to believe we’re now reaching those crucial last months of the year and starting to look ahead into the next year.
For me, having joined the business back in July, it’s certainly been an exciting journey to date. Commercial real estate is a real passion for me – so taking on the role of regional lead for the north was a very natural next step.
Ongoing change
I certainly picked a very interesting time to move into the role. 2023 has definitely seen its fair share of volatility, and the commercial market is at least 50% smaller than it has been - on average - in previous years. This upheaval began with the market turbulence following last September’s mini-budget, and we saw the impact this year, with higher interest rates being just one of the consequences, and a shock to the system compared to the rates of the last decade.For commercial investment, volumes were down – certainly in quarter one – which have been more noticeable because of the smaller numbers available in this part of the sector. However, after a low point in quarter two where the sector reached ‘rock bottom’ in terms of market activity, and investors waited to pursue their next purchase in the hope of further price drops, we’re now seeing signs of things stabilising, although it’s still true to say that many investors are still waiting for more certainty around rates, before they act.
View of the market
One of the recent trends brought on by market volatility is a move towards investors pursuing diversification of their portfolios. For example, a commercial investor branching out into buy-to-let or holiday lets. This allows them to spread the risk across their portfolios, as well as to spread income and capital growth, as different sectors are behaving differently in terms of the speed at which property assets are appreciating in value. There are also other factors at play here. For example, the cost-of-living crisis may lead to more purchases of holiday lets, as holidaymakers potentially restrict their abroad travel and choose to stay local – a similar trend to that which we saw during the pandemic.As for sector specifics – prime assets are doing well. Retail in particular, has had a transformation since the pandemic with lower quality assets disappearing – so now we’re left with better value assets as a result.
Retail warehousing is also doing well – again – because of the pandemic, which created a drive for online shopping - which continues - and industrial property is also in high demand, although this is largely due to the limited supply of stock.
In the world of office space, there are some challenges. Prime office space is doing well because workers who have returned to the office fewer times a week want a higher quality office experience with space to collaborate rather than lots of rows of desks – they want to feel that going into the office is worth the trip. So, there are a lot of lower quality or older stock office buildings around, and vendors may struggle to get these rented out or sold.
EPC changes – what next?
Looking further ahead, there may be hurdles which will affect investor purchase behaviour moving forwards. For example, although the government has recently scrapped requirements around EPC regulations, it seems by no means certain what may be required in the future instead to achieve energy efficiency targets. And this is certainly something on the minds of investors – who are actively seeking out higher quality, more energy-efficient properties. It’s also true that many lenders will still base their decisions to lend on the quality of the assets in question - for example those which are energy efficient with low carbon emissions. These are issues which will only become more important in the future.On the horizon
As to the next six months and beyond, I’d expect to see a release of pent-up demand from commercial investors with the ability to purchase - perhaps returning to the market where they see value to be had. I imagine we’ll also see a gradual increase in property value for commercial investment property over the coming years, across all sectors.I’d also expect to see a rise in capital raising by investors, as the value of their investment increases – which will in turn stimulate the economy and can only be good news for us all.
Closer to home
As for us, our focus will be on the continued development of our propositions and products to serve our valued brokers and their clients, and the strength of our teams who sit at the heart of our business, as we face into the last months of the year and 2024.For my own team – we’re looking at recruitment – including promoting internal talent - to best serve our brokers and customers. We’ve recently promoted Barry Dillion to the position of senior relationship director, where he’ll be looking at delivering the most complex loans in the Yorkshire region, as well as taking the lead for broker engagement. These types of steps are testament to our desire to ensure we have the right people in place to support quality lending in the regions as we move into the future. And I for one - am really looking forward to what that future will bring.
YBS Commercial Mortgages has implemented some changes to its sales team this week, as part of its ambitious growth strategy with broker and client support at its heart.
The commercial lender has taken the decision to create a new London Hub, with a new regional director at its helm, supported by a new team of relationship directors - who have been deployed from existing internal teams. The new hub will have a business development focus at its core, with the aim of building a strong presence in the London area.
Recruitment for the role of regional director is now complete, with Andrew Edwards, an internal candidate, taking on the position, which is based at the Yorkshire Building Society Kensington branch, on Kensington High Street.
Andrew, who is currently regional lead for the South-East team, commented: “I’m really looking forward to taking our products and propositions to even more brokers and customers across the London area and adding even more value to the business.”
Andrew will be working closely with other team members of the new London hub, including senior relationship directors Mark Setchell and Gaynor Morgan; and relationship director Dan Sloman.
Tom Simpson, managing director for YBS Commercial Mortgages, said: “As a lender who can operate in any part of England and Wales, a nationwide presence is vital. London is a crucial market, and we’re thrilled that we’re now able to execute our plans to build out our presence in the region.
That’s why I’m delighted that Andrew has accepted the role of regional director for the London hub. This is another great example of supporting and promoting internal colleagues, and I wish Andrew all the best as he embraces his new role, growing our distribution reach in this area, in line with our strategic ambitions as a business.
As a strong, stable lending partner, we’re focussed on providing a dedicated personal service to all our brokers and their clients, wherever they are based. This move will enable us to strengthen our offering in the commercial market.”