Despite the turbulence in the residential market caused by rising interest rates and affordability challenges, the commercial lending arena has remained relatively stable, although it continues to be an underutilised area of lending for many brokers.
A recent report from easyMoney, analysing Bank of England mortgage approval data, highlighted some notable trends over the past decade, with commercial lending growing at an average annual rate of 2.1%, compared to just 1.4% for residential transactions.
Focusing on the volume of lending, the residential market’s recent peak was in 2021-22, when there were 1.37 million transactions. This was at a time when the market was boosted by the stamp duty holiday, following a pause for breath during the pandemic.
However, since then, rising interest and mortgage rates have taken their toll. Residential transactions dropped by 11.2% to 1.22 million in 2022-23, and then by 17.8% to just over 1 million in 2023-24. In contrast, the commercial market has been more stable, experiencingmore modest falls from 124,860 in 2021-22, to 123,430 in 2022-23 (-1.1%) and then by -4.1.% to 118,360 in 2023-24.
This consistency highlights the strength and stability of the commercial property market, particularly in challenging economic conditions. Yet, despite this growth potential, commercial mortgages remain largely overlooked due to their undoubted complexity.
THE RISING NEED FOR SPECIALIST ADVICE
One of the biggest barriers to entry in the commercial mortgage space remains a lack of awareness and accessibility. A recent Time Finance survey found that 60% of UK SMEs never look beyond their main bank for commercial finance solutions. Even more striking, just 27% of businesses rejected by their bank seek alternative funding options.
This indicates a major gap in the market, one the intermediary market is perfectly positioned to fill. By educating business owners about specialist lending solutions and connecting them with the right lenders, intermediaries can help SMEs secure financing that they may otherwise have overlooked, struggled to access or simply ignored.
Unlike traditional high street banks, specialist lenders offer greater flexibility through manual underwriting processes, allowing for a more tailored approach to structuring deals. This enables them to support businesses with more complex financial circumstances, helping them secure funding that mainstream lenders might decline.
SEMI-COMMERCIAL MORTGAGES: A SUSTAINABLE INVESTMENT OPTION
Looking beyond the pure commercial mortgage, with the UK property market under significant pressure as housing demand increases and available land diminishes, semi-commercial properties are emerging as an attractive investment choice for landlords, investors and developers.
These properties provide:
- Greater stability – with both residential and commercial tenants, landlords benefit from diverse income streams, reducing their risk exposure.
- Sustainable rental demand – commercial tenants offer longer lease agreements, while residential units ensure consistent rental returns.
- More control for business owners – many SMEs are choosing to purchase their premises instead of renting, allowing them to stabilise costs and build equity.
The value of expert, informed advice in some of the more niche lending areas has never been greater. Brokers who collaborate with trusted packaging partners and specialist lenders to embrace commercial and semi-commercial lending will position themselves at the forefront of this thriving sector. By expanding their expertise and offering access to tailored solutions, they can unlock new opportunities, strengthen client relationships, and drive long-term business growth in an evolving growth market.
