This year, YBS Commercial Mortgages has hit its five-year anniversary. What did the commercial market - and the brand - look like when you launched in 2019?
When we first launched YBS Commercial Mortgages in 2019, we decided on a soft launch, as we were testing things out initially to see how much need there was in the market for what we offer. So, we started out on a smaller-scale, honing our processes, products and propositions in the background, based on initial customer feedback, ready to launch fully in 2020.
As we entered 2020, the commercial market was fairly healthy, with decent long-term growth prospects, so we were feeling confident as we readied ourselves for our full launch, completing initial recruitment, finalising product and process work, and growing our broker panel.
How have you evolved the brand to align with the market over time?
Just as we were going ahead with our full market launch, 2020 and the global Covid-19 pandemic arrived, creating a huge amount of uncertainty about what was going to happen in the commercial property market. Our emerging pipeline of business evaporated overnight, as investors became nervous, so we made the decision that our most useful contribution to the sector was to do the best job possible for every client we worked with during this difficult time – offering excellent service, great products and long-term reliability while being realistic in our expectations. By the end of year one, our small team had delivered £120 million in new commercial property lending and we were really proud of how the team had worked to navigate the uncertainty and complexity for our broker partners.
At this point, we turned our attention to gaps in the market – for example, refining our corporate buy-to-let proposition – reaching a new lending target of 300 million by the end of 2021. In 2022, we built on this – expanding the team, which now stood at 60-70, and achieving £500 million in new lending. By now, the commercial property market was functioning well following Covid, although the September 2022 mini-budget changed all that, making for a really challenging backdrop as we all went into 2023 – with sky high swap rates, (the market rates which drive the cost to lenders of offering fixed rate lending) and activity down by 50 per cent on our five -to 10-year average. However, we were able to capitalise on the quieter market, ‘fixing the roof while it was raining’ as we termed it – thinking longer-term and using the time to invest in our people and expand our distribution channels, so that when things picked up – we were ready. And we were still able to achieve over £500 million in new lending in 2023.
This leads us to 2024 – which has seen us enter a new market, launching a new product for owner-occupiers (SMEs); build our team out further and expand our broker panel, and there’s more to come.
What have you been most proud of in the last five years?
The last 12 months, in particular, have been extremely challenging in the commercial property market – but we’ve still managed to achieve some great things. We grew our balance sheet by 25% in 2023, supporting numerous broker partners and investors. The launch of the new SME product lends itself to our purpose as part of Yorkshire Building Society, which, as a mutual, is committed to supporting the vitality of its communities. For us this translates into offering purposeful lending solutions which really make a difference to brokers and their clients. I’m really proud of the approach the team adopt – always seeking broker and customer feedback, and trying to build this into everything we do.
What will the next five years bring for the commercial market?
To answer this question, we need to take a wider, more strategic perspective. I believe the housing market needs reform to function correctly, and the commercial property market has a part to play – for example, empty commercial space could be converted into homes. Lenders have a part to play to facilitate this, as does the Government, and there needs to be investment in the market to make this idea work for both investors and tenants. This kind of development will need to be carried out responsibly to ensure the creation of decent quality, energy-efficient housing, which is fit for the future.
If we look at the future of the commercial sector, it’s a mixed picture. There are threats – for example in retail and office space where, although some segments are doing well, like essential retail, others are struggling with low tenant demand and devaluation of assets. For the office sector, higher quality buildings should continue to perform well – although there are worries over lower quality office stock, and what will happen to those in the future if they are not converted.
The SME sector is really vibrant – and this should continue, as long as lenders ensure they provide the support to help them access the finance they need. Our ‘boots on the ground’ in the form of a named point of contact they can speak to whenever they need to - will be essential here.
As we move into the future, we also need to bear in mind the cost of funding. I think we can all accept that this higher-interest-rate environment is the new normal. However, once inflation returns consistently to target levels, we should see a levelling-out of interest rates, which will stimulate market activity.
And we’ll be well positioned for the uptick when this happens.
