COMMERCIAL FINANCE

In the commercial lending environment, Northern Rock provides mortgage financing to assist in the purchase of new businesses, the expansion of existing businesses and for investment in residential, industrial, retail or commercial property. We operate on a national basis, through a head office operation based in Sunderland and a network of regional sales offices distributed throughout the UK. Lending activity is restricted to the purchase or refinancing of existing property in England, Scotland and Wales.

Customers

Loans are provided to individuals, partnerships, limited companies and other organisations that will be able to afford to fully meet debt service levels during the term of the loan, with reference to proven cashflow.

Lending Sectors

Our current policy is to lend on a limited range of commercial securities, primarily on an investment (rather than an owner-occupied) basis. The main lending sectors are:

  • residential investment;
  • office;
  • retail;
  • industrial.

We also undertake limited lending in the following sectors:

  • Nursing Homes
  • Professional Practices (i.e. Doctors/Dentists surgeries, Legal/Accountancy practices etc)

The following sectors are normally excluded from our lending policy:

  • Development Finance
  • Hotels and Guest Houses

See also Commercial Lending in Marketing.

Environmental Policy

Exposure to environmental risk is controlled in three primary ways:

  1. Lending policy- we seek to avoid lending scenarios which carry increased potential for environmental risk such as development finance and loans to industrial users. Lending activity in the industrial sector is focused on loans to investors secured on purpose built units on modern industrial estates. For the most part, lending policy excludes the sectors which are identified with the primary causes of land contamination

  2. Credit approval- this involves a thorough appraisal of the security of the property offered and identified environmental risks are fully investigated as an integral part of assessing overall risk

  3. Professional Advisors - both valuers and solicitors play an important role in assessing the impact of environmental risk:

    1. The valuation instruction requires the valuer to comment on environmental considerations in respect of the subject and adjoining property, including the implications of the Environmental Protection Act 1990 and whether an initial Environmental Audit and/or fuller report is advisable. Additionally, the valuer is asked to comment on the potential for a reduced valuation in view of any issues. This raises any potential environmental issues or risks at a relatively early stage in the process so that they can be appropriately investigated and additional reports obtained, including an Environmental Agency report, if necessary.

      We would expect confirmation from the valuer that there are no (and are not likely to be any) significant pollution or similar risks associated with the property (including air, noise, chemical spills or long-standing site contamination etc.)

    2. Solicitors representing Northern Rock are required to investigate environmental issues which will have been made known to them via the valuation report or by the applicant's legal representatives. Whilst the approach might vary, the solicitors will requisition information to identify the precise risks. This may include an Environmental Agency Report. Such environmental enquiries encompass a wider range of statute including the Public Health Act 1936, the Control of Pollution Act 1974, the Environmental Protection Act 1990, the Water Resources Act 1991, the Environment Act 1995 and any health and safety legislation.

By having no involvement with development finance we substantially reduce the risk associated with "brownfield development". By lending across a wide spectrum of property types we also have limited exposure to industrial processes. Lending within the sector is normally limited to light industrial/modern property. The typical loan would be a purpose-built industrial estate of multi-purpose units including manufacturing, storage and distribution. The typical borrower would be an investor and not an owner-occupier involved in multi-operation industrial processes. The properties concerned would appeal to small and medium occupiers and not to large-scale industrial complex users.

This widely diversified portfolio approach has allowed the spread of risk to be balanced. The appraisal process, supported by a panel of leading valuers, identifies areas that may require the benefit of an environmental risk assessment prior to progressing particular proposals, ensuring that significant risks including environmental risk are identified, investigated and mitigated. It is our policy in all such cases that specialist environmental consultants reports are sought prior to proceeding with funding.

Acting solicitors also provide an Environmental Information Questionnaire to the borrower's advisor. The information provided highlights any previously unidentified risks, which can then be assessed by our professional advisors and experienced Lending Team who are fully aware of Northern Rock's environmental risk and impact assessment policy.

Our loan appraisal process incorporates an environmental risk assessment of the current/previous site usage and also the potential risk of contamination due to the activities of current or neighbouring occupiers. The security process contains environmental covenants by the borrower to ensure Environmental Compliance and enables us to take appropriate remedial action if the need arises. Finally, we also have a loan review and monitoring programme, which incorporates environmental performance into the loan management process for the life of the loan.

© Northern Rock plc. 2008