According to the Mortgage Bankers Association, delinquency rates for commercial loans were at near record lows in the first quarter of 2018. The delinquency rate for loans held by banks is 0.51% overall, with commercial mortgages loans at a rate of 3.9% which is 15 basis point below the last quarter’s figures for 2017.
Jamie Woodwell, vice president of the Mortgage Bankers Association, commented that the low delinquency rates are continuing ”to be driven by strong property fundamentals, increasing property values, still-low mortgage rates and readily available financing.”
Some smaller alternative lenders have reported delinquency rates at almost zero.
When a lender considers a commercial mortgage application, they do strict tests to determine whether a lender can afford the mortgage repayments. The small number of borrowers that cannot repay their mortgages demonstrates that on the whole, the affordability tests are accurate. Part of these tests involves examining the financial accounts of the borrower. The lender wants assurance that the loan payments will be paid, even if interest rates rise in the future.
Though lenders can repossess the commercial property if a mortgage is not paid, this is the last resort as they prefer to make arrangements for ways in which the loan can be repaid.
Commercial mortgage interest rates are higher than residential mortgage rates, but would probably be a lot higher if more businesses could not repay loans. Interest rates are partially based on the assessment of the loan risks as well as the current Bank of England interest rate.
