Commercial mortgage enquiries rising but ‘noticeable gaps’ from lenders, brokers say

Akhil Mair, director at Our Mortgage Broker, said that there had been a “noticeable increase” in commercial finance enquiries in the last 12 months.

He said: “We’re receiving various enquiries ranging from small business loans to commercial real estate financing, including houses in multiple occupation (HMOs), commercial investment purchases and bridging loans to take advantage of the permitted development rights for property conversions.”

Chris Sykes, technical director at Private Finance, agreed that enquiries were up as it was targeting more commercial business, but “organic traffic has increased, as well as more portfolio landlords looking at these types of investments”.

“I’ve got all sorts on my desk; pub refinance, purchase of a pub, commercial convenience stores with uppers, redevelopment of a commercial premises and office into four flats and a downstairs commercial unit, a car sales lot,” he said.

This was echoed by Guy Nyirenda, head of commercial and specialist lending for Altura Mortgage Finance, who said that there had been a “reasonable increase” in commercial enquiries and there was a full spread of security types, including retail, healthcare, offices and hospitality and leisure.

“The most common reason being that the traditional commercial lenders in the high street are unable to currently meet the demand for new and existing clients. This has really been exacerbated since the time of the mini Budget in 2022, which, among other things, put a strain on the stress-testing across the board. We are finding that long-term existing clients unable to renew with their banks are looking for alternative lenders,” he added.

Bob Singh, founder at Chess Mortgages, said that his firm was seeing an increase in enquiries for commercial lending remortgages, as recent base rate hikes have left borrowers paying rates in the double digits.

Singh continued: “The specialist lenders are seeing increased levels as they have sensible minimum lending levels, whereas some lenders don’t want brokers to darken their doorsteps with any enquiry less than £500,000.

“The high-street lenders who don’t have an intermediary focus are losing out on quality business with good margins much more so than the residential market.”

He said that new-start businesses were having to use bridging rate deals to secure freehold premises, but as the economy is improving, so “better confidence is returning to the commercial market”.

Singh said that Chess Mortgages was focusing on commercial and short-term lending under its Chess Capital banner and said it would be an “increasing part of our business going forward”.

Lenders increasing commercial appetite but being ‘cautious’

Mair said that the lending landscape is “dynamic, with traditional and alternative lender options available, influenced by regulations and market conditions”.

“Lenders are cautiously returning with product and criteria enhancements, but there are still noticeable gaps, especially for niche sectors or unique financing needs for self-employed and portfolio landlords.

“Possibly, as the economy stabilises, we may see new entrants and mergers, depending on regulatory and market factors. Lenders should offer transparency, flexibility, and streamline processes. Borrowers should understand terms, compare offers, and ensure financial health before committing,” he added.

Nyirenda said that, although lenders were returning to the market, they were still “quite cautious” in the commercial space currently.

“This may be demonstrated by lower loan to values (LTVs) offered currently, or higher stress-testing, which limits the amount of lending available for borrowers. Although the high street has been propped up in recent years by the challenger banks, they are also being more conservative in their lending in the current market,” he said.

He said that the cost of funding was “still partly to blame” for this, as the lending is assessed on the bank’s margin above cost of funds, which “makes lending at the higher LTVs difficult”.

Consequently, Nyirenda said that the cost of funding made it a “difficult market to enter for a new entrant”, but there was plenty of venture capital out there looking for deployment, though the returns needs make it “hard to price and lend out”.

“The whole market needs a fall in the cost of funds to start to open up the lending gaps and shortfalls in the market currently. However, we have seen a couple of high-street lenders loosening their policy on stress-testing to allow better lending in the commercial space.

“Also, some will now consider interest-only for low-LTV lending to again help to facilitate more lending. This is welcomed and it would be great to see more high-street lenders picking this up.

“Borrowers should be looking ahead with any of their facilities that are due for expiry and/or renewal within the next 2-3 years and start making plans now on what will be needed to refinance or renew elsewhere in the current market.”

Sykes said that the market will “almost certainly see more lenders in this space” and had had conversations with a few bridging lenders looking to “bring out commercial term facilities and who have even already secured funding lines to do so”.

“This is a great opportunity for diversification of existing lenders,” he noted.

Some views were gathered from Newspage.