Commercial Mortgages Analysis
Business funding is a hot topic in the business news. Availability of small business funding is often quoted as a barrier restricting the UK recovery. What's opinion and what's fact? Let the data tell the real story!

We have taken a snap shot (1st September 2014) of all the commercial mortgage charges lodged with companies house to find out who is lending, what kind of loans they issuing and what does the data tell you about trustworthyness of creditors.

Top Mortgage Lenders
Here's the top 20 companies that are registered with Companies House as being the creditor of an outstanding mortgage charge (in raw format).

Mortgagee Number of charges registered
NATIONAL WESTMINSTER BANK PLC 164,740
BARCLAYS BANK PLC 150,744
HSBC BANK PLC 94,017
LLOYDS TSB BANK PLC 81,739
THE ROYAL BANK OF SCOTLAND PLC 77,968
MIDLAND BANK PLC 38,585
LLOYDS BANK PLC 35,166
THE GOVERNOR AND COMPANY OF THE BANK OF SCOTLAND 35,056
SVENSKA HANDELSBANKEN AB (PUBL)17,496
CLYDESDALE BANK PLC17,271
THE TRUSTEE, LLOYD'S, THE AGENT, ALL POLICY HOLDERS AND CERTAIN OTHER PERSONS OR BODIES 15,111
CLYDESDALE BANK PUBLIC LIMITED COMPANY 13,979
AIB GROUP (UK) PLC 12,920
LLOYDS TSB COMMERCIAL FINANCE LIMITED 12,241
NATIONWIDE BUILDING SOCIETY 10,931
BANK OF SCOTLAND PLC 10,211
CAPITAL HOME LOANS LIMITED 8,745
THE GOVERNOR AND COMPANY OF THE BANK OF IRELAND 8,710
PARAGON MORTGAGES LIMITED8,704
YORKSHIRE BANK PLC7,904

So the first thing to note is that there are some bank brands in there that don't exist anymore such as Midland Bank. Commercial mortgages are no different to residential mortgages and may have a term of 20+ years. The mortgage hasn't stopped simply because Midland ceased to exist as a brand! The Midland brand was phased out in 1999 and is now part of HSBC. We can remove the Lloyds entry where are multiple parties are involved in the charge. There are also some companies in there traditionally associated with residential mortgages. This may be because of a Buy-to-let portfolio through a limited company. We also need to clean-up some entries eg Bank of Scotland where The Governor and Company of the Bank of Scotland became Bank of Scotland plc on 17 September 2007. In 1995 Lloyds bank merged with the Trustee Savings Bank and traded as Lloyds TSB Bank plc between 1999 and 2013 so we'll merge those entries. We will however treat LLOYDS TSB COMMERCIAL FINANCE LIMITED as a separate entity. National Westminster Bank is a trading name. It is part of the Royal Bank of Scotland so is not a PLC in it's own right anymore. As it trades independently under that brand, we will still include it in the results in it's own right.

OK. Here's a cleaned up table:

BankNumber of charges (loans) % of market
NATIONAL WESTMINSTER BANK PLC 164,740 20.41%
BARCLAYS BANK PLC 150,744 18.68%
HSBC BANK PLC 132,602 16.43%
LLOYDS BANK PLC 116,905 14.48%
THE ROYAL BANK OF SCOTLAND PLC 77,968 9.66%
BANK OF SCOTLAND PLC 45,267 5.61%
CLYDESDALE BANK PLC 31,250 3.87%
SVENSKA HANDELSBANKEN AB (PUBL) 17,496 2.17%
AIB GROUP (UK) PLC 12,920 1.60%
LLOYDS TSB COMMERCIAL FINANCE LIMITED 12,241 1.52%
NATIONWIDE BUILDING SOCIETY 10,931 1.35%
CAPITAL HOME LOANS LIMITED 8,745 1.08%
THE GOVERNOR AND COMPANY OF THE BANK OF IRELAND 8,710 1.08%
PARAGON MORTGAGES LIMITED 8,704 1.08%
YORKSHIRE BANK PLC 7,904 0.98%

This is a classic Pareto example. The top 4 companies account for 70% of the mortgage charges!

Right let's start drilling down into the data. Commercial charges and loans can seem a complex and bewildering area to the outsider. Debentures, fixed charges, floating charges.....the terminology is very different to buying a house where it's a mortgage. For loans, we are used to the idea of secured or unsecured loans. The statistics above predominantly relate to secured loans. In order for an entry to be lodged with Companies House, a charge is created which means there's an entry recording the company as a creditor and that usually means it's secured.

So let's consider a mortgage on your home. The bank may own your home in reality but you have use of it in return you pay them interest on the outstanding debt. Your mortgage company has a charge on the property and it will be recorded at the Land Registy. In business exactly the same can happen when you buy an office, warehouse etc with a commercial mortgage and the bank lodges a charge on it which is recorded against the company and against the property. This kind of property is fixed in the same place. However your business might be a trucking company, an airline or something similar where the assets you want are expensive but also very moveable. These would be fixed charges against a thing of value so an aircraft can effectively be mortgaged. This would be recorded as a fixed charge.

Now if your business is shifting things, you may have lot of money tied up in stock. It's possible to get a commercial loan secured against your stock. Now if you're business is doing well then your stock is constantly being sold so the specific items in your stock are constantly changing. If the loan was secured against the stock, it won't be the exact same stock over time - the specific stock will be changing. Just like a mortgaged house that you're living in, you have use of the stock. If you default on your loan then the bank owns your stock. Say you were an oil company, the bank might secure the loan against the oil in an oil storage facility. The market price for oil fluctates so the bank will hedge this in your loan - on other words the interest rate will be higher than for an asset such as property. These types of loans are called floating charges since the specific assets which the loan is secured against, are "floating". If the loan was secured against the stock, it won't be the exact same stock over time - the specific stock will be changing. Just like a mortgaged house that you're living in, you have use of the stock. If you default on your loan then the bank owns your stock. Say you were an oil company, the bank might secure the loan against the oil in an oil storage facility. The market price for oil fluctates so the bank will hedge this in your loan - on other words the interest rate will be higher than for an asset such as property. These types of loans are call floating charges since the specific assets which the loan is secured against, are "floating".

So how are all these registered charges at companies house split?

The next table shows all the different type of charges lodged with Companies House. This includes charges from a wide range of creditors - not just banks. We'll start simplifying it later - it does however show the mind boggling array of ways available to create liquidity.

LEGAL CHARGE 279256
DEBENTURE 272307
LEGAL MORTGAGE 98383
MORTGAGE 64384
STANDARD SECURITY 44766
RENT DEPOSIT DEED 43911
MORTGAGE DEBENTURE 31012
MORTGAGE OR CHARGE 25084
FLOATING CHARGE 24074
MORTGAGE DEED 18511
ALL ASSETS DEBENTURE 15824
BOND & FLOATING CHARGE 15232
CHARGE 14704
FIXED AND FLOATING CHARGE 14480
GUARANTEE & DEBENTURE 13150
DEED OF CHARGE 8657
CHARGE OF DEPOSIT 5733
DEBENTURE DEED 5423
DEED OF CHARGE OVER CREDIT BALANCES 5054
SINGLE DEBENTURE 4827
CHATTEL MORTGAGE 3654
AN OMNIBUS GUARANTEE AND SET-OFF AGREEMENT 3254
DEED OF ASSIGNMENT 3175
SECURITY AGREEMENT 2963
THIRD PARTY LEGAL CHARGE 2757
FIXED CHARGE ON PURCHASED DEBTS WHICH FAIL TO VEST 2463
DEED OF LEGAL MORTGAGE 2417
GUARANTEE AND DEBENTURE 2356
FIXED & FLOATING CHARGE 2343
COMPOSITE GUARANTEE AND DEBENTURE 2242
LEGAL AND GENERAL CHARGE 2050
LEGAL ASSIGNMENT 1957
DEPOSIT AGREEMENT TO SECURE OWN LIABILITIES 1871
SOLICITORS LETTER OF UNDERTAKING 1777
CHATTELS MORTGAGE 1705
CHARGE OVER CREDIT BALANCES 1704
DEED OF LEGAL CHARGE 1691
SUPPLEMENTAL DEED 1639
ASSIGNMENT 1630
CHARGE DEED 1578
RENT SECURITY DEPOSIT DEED 1489
FLOATING CHARGE (ALL ASSETS) 1339
DEPOSIT AGREEMENT 1271
SECURITY ASSIGNMENT 1269
DEED OF RENTAL ASSIGNMENT 1266
FIXED CHARGE ON NON-VESTING DEBTS AND FLOATING CHARGE 1246
CHARGE AND DEED OF ASSIGNMENT 1226
DEED OF DEPOSIT 1209
CHARGE OVER SHARES 1207
FIXED CHARGE 1119
DEED OF RENT DEPOSIT 1093
LEASE 1055
LEGAL CHARGE OF LICENSED PREMISES 1044
DEED OF ADMISSION TO AN OMNIBUS GUARANTEE AND SET-OFF AGREEMENT 1038
AIRCRAFT MORTGAGE 1017
ASSIGNMENT OF RENTAL INCOME 992
SUPPLEMENTAL DEBENTURE 970
RENT DEPOSIT AGREEMENT 968
SHARE CHARGE 926
DEED 918
DEED OF COVENANT 898
MEMORANDUM OF DEPOSIT 885
FURTHER CHARGE 883
DEED OF SECURITY ASSIGNMENT AND CHARGE 879
DEPOSIT DEED 878
LEGAL MORTGAGE (OWN ACCOUNT) 855
LEGAL CHARGE OVER LICENSED PREMISES 806
FIXED AND FLOATING SECURITY DOCUMENT 787
TRUST DEED 773
LLOYD'S PREMIUM TRUST DEED (GENERAL BUSINESS) 773
MARINE MORTGAGE 766
ASSIGNATION OF RENTS 757
SUPPLEMENTAL LEGAL CHARGE 741
COMPOSITE DEBENTURE 739
AGREEMENT 731
DEED OF RENTAL DEPOSIT 679
DEED OF ACCESSION 662
DEED OF ASSIGNMENT OF RENTAL INCOME 661
ASSIGNATION IN SECURITY 587
MEMO OF DEPOSIT 580
OMNIBUS GUARANTEE AND SET-OFF AGREEMENT 574
SECURITY DEED 555
LLOYDS PREMIUM TRUST DEED (GENERAL BUSINESS) (THE TRUST DEED) 547
SECOND LEGAL CHARGE 537
SUB-CHARGE 537
SUPPLEMENTAL CHATTEL MORTGAGE 528

Pareto is at work here as well. Legal Charges and Debentures form over 50% of the registered charges.

Some of these are not really commercial loans or mortgages. For example a Rent Depsit Deed is a way for the landlord to make sure he gets paid if the company goes into administration. Similarly many Debentures are ways for creditors such as company Directors to be repaid any loans they have made to the company in the event of the company going into administration.

Standard Security is the method used in Scotland for creating a charge against a fixed asset. 41,841 out of the 44,766 Standard Security charges are against Scottish companies - the rest are companies from elsewhere in the British Isles that presumably have assets in Scotland.

Nat West bank had the largest number of registered charges, so here's the breakdown for Nat West.

LEGAL CHARGE 49761
DEBENTURE 43038
LEGAL MORTGAGE 28137
MORTGAGE DEBENTURE 20198
CHARGE OF DEPOSIT 4064
CHARGE OVER CREDIT BALANCES 1484
MORTGAGE 1150
THIRD PARTY LEGAL CHARGE 1038
LEGAL CHARGE OF LICENSED PREMISES 750
LEGAL CHARGE OVER LICENSED PREMISES 624
CHARGE 444
STANDARD SECURITY 406
FLOATING CHARGE 191
SUB-CHARGE 183
BOND & FLOATING CHARGE 123
CHARGE OF AGREEMENT FOR LEASE 115
CHARGE OVER BOOK DEBTS 100
CONFIRMATORY CHARGE 93
ASSIGNMENT OF LIFE POLICY 90
SUB-MORTGAGE 90
MEMORANDUM OF DEPOSIT 89
CHARGE OVER CONTRACT 67
DEED OF COVENANT 64
CHARGE OF SECURITIES (UK) 60
MEMO OF DEPOSIT 56
CHATTEL MORTGAGE 55
DIRECT AND THIRD PARTY LEGAL CHARGE (TRUSTEE AND BENEFICIARY) 48
THIRD PARTY CHARGE OF DEPOSIT 43
SHIPS MORTGAGE 42
THIRD PARTY CHARGE OF DEBT 36
DIRECT AND THIRD PARTY LEGAL CHARGE 35
MARINE DEED OF COVENANT 35
CHARGE OF SECURITIES 35
LEGAL CHARGE OF LICENCED PREMISES 28
DEED OF CHARGE OVER CREDIT BALANCES 28
DEED OF ASSIGNMENT 27
FIXED CHARGE ON BOOK DEBTS AND OTHER DEBTS 26
SUPPLEMENTAL CHARGE 22
DEED OF COVENANT SUPPLEMENTAL TO THE MORTGAGE 22
SECURITY DEED 22
ASSIGNMENT OF LIFE POLICIES 22
SUB CHARGE 19
STATUTORY SHIP'S MORTGAGE TO SECURE AN ACCOUNT CURRENT 18
CHARGE OF BUILDING LICENCE 18
THIRD PARTY CHARGE 18
KEYMAN INSURANCE ASSIGNMENT 17
DEED OF CHARGE 17
MORTGAGE DEED 17
DEBENTURE 17
GUARANTEE & DEBENTURE 16
SUB MORTGAGE DEED 15
SUB-CHARGE OF A MORTGAGE 14
SUPPLEMENTAL DEBENTURE 13
THIRD PARTY LEGAL CHARGE OF LICENSED PREMISES 13
DEED OF DEBENTURE 13
CHARGE OVER A BUILDING AGREEMENT 13
ASSIGNMENT 12
CHARGE OVER DEPOSIT 12
CHARGE AND ASSIGNMENT BY WAY OF SECURITY 12
CHARGE OVER ACCOUNTS 12
FLOATING CHARGE 12
RENT DEPOSIT DEED 11
MEMO. OF DEPOSIT 11
CHARGE OVER CREDIT BALANCES. 11
CHARGE OF EQUIPMENT AND LEASES/HP AGREEMENTS 11
FIXED AND FLOATING CHARGE 11
STATUTORY SHIP'S MORTGAGE 10
COMPOSITE GUARANTEE AND MORTGAGE DEBENTURE 10
CHARGE 10
SECURITY AGREEMENT 9
CHARGE ON DEPOSIT 9
CHARGE LEGAL CHARGE 9
COMPOSITE GUARANTEE AND DEBENTURE 9
DEED OF VARIATION SUPPLEMENTAL TO A LEGAL MORTGAGE 9
SUPPLEMENTAL DEED OF FIXED CHARGE 9
MORTGAGE OR CHARGE 8
ASSIGNMENT OF RENTAL INCOME 8
CHARGE OF DEBT 8
MORTGAGE TO SECURE AN ACCOUNT CURRENT 8
GUARANTEE AND DEBENTURE 8
LEGAL MORTGAGE & FLOATING CHARGE 8
ASSIGNMENT AND CHARGE 7
ASSIGNMENT BY WAY OF SECURITY 7
CHARGE SUPPLEMENTAL TO A MORTGAGE DEBENTURE 7
CHARGE OF AGREEMENT 7
CHARGE OF EQUIPMENT AND LEASES/HP AGREEMENTS SCHEDULE 7
PLEDGE OVER SHARES 7
THIRD PARTY CHARGE OF SECURITIES 7
LEGAL MORTGAGE OF LIFE POLICY 7
DEED OF SUPPLEMENTAL DEBENTURE 6
CHARGE OF BUILDING CONTRACT 6

Beyond the mainstream, you can see that things quickly get esoteric. Loans can be secured against any asset for each money that people owe the company (debtors) - a kind of pay day loan for business !

One of the more mainstream items is a MORTGAGE DEBENTURE. This is a little more dangerous. It's usually a standard mortgage against a fixed asset such as a building but also has a floating charge element against current and future assets. It basically means the bank can take a position against any assets and if it sees the value of security devaluing, call in the adminsitrators to liquidate the company assets. It's best to seek legal advice prior to committing to something like a mortgage debenture.

So if banks have the power to wind up a company, who and how many banks actually do this in practice?

So here's the analysis of winding up petitions raised against UK companies by companies in the financial services sector. We don't have the detail on the reason for each petition raised we simply know who raised the petition (ie which creditor). The petitions analysed are over the period 6th March 1997 - 8th August 2014.

Creditor raising Winding-up Petitions# Petitions
RBS INVOICE FINANCE LIMITED153
PREMIUM CREDIT LIMITED81
CLOSE INVOICE FINANCE LIMITED24
GO DEBT LIMITED21
HSBC INVOICE FINANCE (UK) LIMITED16
ING LEASE (UK) LIMITED15
UNIVERSAL LEASING LIMITED14
BARCLAYS BANK PLC11
BANK OF SCOTLAND PLC8
BARCLAYS MERCANTILE BUSINESS FINANCE LIMITED8
FUNDING CIRCLE LTD5
GOLDCREST FINANCE LIMITED5
SME INVOICE FINANCE LIMITED5
INVESTEC ASSET FINANCE PLC5
KBC LEASE (UK) LIMITED5
CLOSE BROTHERS LIMITED4

The first thing to note is how few winding-up petitions there are relative to the number of mortgage charges - it looks like winding up a company is option of last resort. There are plenty of companies here not on the main list which implies they are marginal players. The main lender of Nat West (part of RBS) and RBS are not in this list although their subsidiary RBS Invoice Finance is!

There are several invoice finance companies (invoice factoring) here which implies using debt owed to you by your customers is a higher risk way of funding your business than secured debt.

So are the banks more reluctant to lend? Let's take a look and break down each of the companies month by month over the last 5 years.

Bank 09-Q1 09-Q2 09-Q3 09-Q4 10-Q1 10-Q2 10-Q3 10-Q4 11-Q1 11-Q2 11-Q3 11-Q4 12-Q1 12-Q2 12-Q3 12-Q4 13-Q1 13-Q2 13-Q3 13-Q4 14-Q1 14-Q2 14-Q3
National Westminster Bank1651206020112131219322692153182015961591160614981543157314791498146915101664178419622049822
Barclays Bank1340149114951346130514621502148615921814216519921924192821531930179424192255235821472249879
HSBC Bank1148114012721326117812421426142514131536170817971670160516221522134215871649159014311803648
Lloyds Bank142678296234421310
Royal Bank of Scotland10671077107898291595880882469174785785010531012852106890611331168157713521461690
Bank of Scotland309273389361298506311521286388388574386451320404362532379628541326156
Clydsedale Bank493565549483481500489516557539730683442386329232255246273331272291108
SVENSKA HANDELSBANKEN AB2733222802762933634184675616457847837576818711010854784888920917962360
AIB GROUP (UK)195151110179158136821099082826380976510213413116813715518458
LLOYDS TSB COMMERCIAL FINANCE LIMITED243305383663407401391394429474495495588529580547542607553105102
Total67197384756777477228783775807562721578168815873584438262827183137658894990111210811740127675033

This shows a different story that the number of mortgage charges lodged has increased over the last 5 years ie There's more lending to businesses. Companies House data is based on outstanding mortgage charges so there is some survivorship bias. That being said loans of this type are usually long term loans and we're looking at a relatively short period of 5 years so the impact should be marginal. Some of the more established players have reduced the number of loans in recent years whilst others are aggressively growing - for example SVENSKA HANDELSBANKEN AB - they havent gone unnoticed and are mentioned in issue 706 page 16 (29th August 2014) of Money Week where they comment about the growing popularity of the Swedish bank and that it has 177 outlets in the UK now and each branch manager is given a lot of autonomy on decision making. To finish this analysis, we'll look at the sizes of companies that are borrowing and the age of companies that are borrowing to see if there's a particular profile that banks are targetting.

So here's the breakdown for mortgage charges for National Westminster for mortgage charges in 2014 and the size of the company based on the Companies House size classification.

TOTAL EXEMPTION SMALL 2601
NO ACCOUNTS FILED 1109
FULL 408
SMALL202
DORMANT172
TOTAL EXEMPTION FULL145
GROUP 135
MEDIUM67
AUDIT EXEMPTION SUBSIDIARY3

The bulk of the lending is to small business (less than £6.5M turnover). As a large number are showing as no accounts filed, it suggests that these are fledgling companies, so let's look and see the age of these companies.

Age of Company (years) # of charges from Nat West
0 411
1-51777
6-10966
11-20933
>20758

A surprising percentage of charges relate to small young companies - it looks like National Westminster is open to taking some risks. How does the upstart HANDELSBANKEN compare?

TOTAL EXEMPTION SMALL 1445
NO ACCOUNTS FILED 353
SMALL 140
FULL 96
TOTAL EXEMPTION FULL 81
DORMANT50
GROUP 47
MEDIUM 25
AUDIT EXEMPTION SUBSIDIARY2

A similar picture for Handelsbanken where there are even stronger lending to small and new companies.

So in conclusion it seems the media is not giving an accurate picture on the availability of mortgages for small business. Lending levels appear to be increasing and lending to small and fledgling businesses doesn't seem to be a problem. There are 1.9M small companies registered with Companies House and 809k have a registered mortgage charge (excluding rent deposits). Presumably the other half don't need to borrow!

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