Commercial mortgage landscape in 2024

How commercial mortgages have changed compared to 2023

Successful moves in business are tough to call: for every example of the wisdom of following the crowd, there is another story of the benefits that come when you buck a trend. 

If you’ve been put off purchasing property because financial news from the last 12-18 months have been all about the turmoil in the financial markets, you’re not alone. But if you have been deliberately keeping your powder dry, there may be real benefits to getting back to the property market before the rest of the pack wakes up and rushes in. 

It’s not just that interest rates are coming down (though that will be a major factor for many business owners); signs are that a new period of stability is upon us – and that means more confidence from borrowers and lenders alike.

In this blog, we are going to look at the factors that should affect your decision about whether or not to get a commercial mortgage. While property ownership is a long-term good idea for most businesses, the exact time of entry to the market could be crucial – and this will help you decide. 

High street banks

In the last six months, we’ve seen the lending appetite of high street banks bounce back: we’ve heard that one of the largest lenders in the SME market is aiming to increase lending volumes by 20 percent in 2024.

Yes, the big banks are naturally more conservative than challenger banks in the market, but we are finding that, even among the biggest names, competition is hotting up. This competition means that margins are coming down – Swoop recently secured outline terms for a commercial mortgage at just 1.09% above base rate.

Does this mean that great deals on commercial mortgages are growing on trees? Not necessarily, as there is high demand from SMEs and the banks will be offering the most favourable terms to the lowest risk deals. 

How can you turn this situation to your advantage? By engaging a finance broker, you will improve your position as we will seek to de-risk your deal and create the strongest possible narrative for your business. Result? You get the best deal available – whoever the lender may be. 

Lender appetite

In terms of appetite, the big banks lag behind challenger banks and specialist lenders which are armed with AI-powered risk assessment and nimble business models. But the big banks have been learning from the upstarts and many have implemented a more enthusiastic attitude towards lending. 

While the divide between traditional and challenger banks has blurred, in general these are the advantages the more modern lenders have: 

• Faster response times, faster underwriting
• More flexible, especially for early-stage businesses, and those who require higher loan-to-asset ratios (in some cases, up to 75 percent)
• A better choice of structures, including interest only mortgages

While these loans have often been more expensive, challengers have reduced their margins in recent months in response to renewed pricing on offer from high street banks.

Brokers seeking funding on behalf of their clients are able to add a great deal of value. Swoop has entry points to the market that customers may not have themselves. Even if you have a good relationship with your bank, you may not be able to access deals as favourable as those available to brokers, whether this be in respect of the terms available or the level of borrowing

Rather than settle for what is available, your broker should put you in a position where lenders are vying for your business.

Interest rates

The cost of borrowing associated with a commercial mortgage will typically be made up of the base rate (Bank of England base rate currently 5.25 percent) plus the lender’s margin. The margin has tended to be higher for commercial mortgages (compared to personal mortgages) and typical ranges are between 2.25 percent and 4 percent. 

In the short term, renewed competition from the banks, is putting a squeeze on the margin and in the medium term Bank of England Base Rate is widely speculated to begin falling later in 2024

At Swoop, we have already been able to negotiate much lower fixed rates as lenders are passing on a fall in the cost of wholesale funds. We have been particularly successful with five year fixed-term mortgages. So, if you don’t want to wait for a gradual easing of pricing in most cases we can secure a competitive fixed rate today.

The variable factor in most cases is the lender margin: lower rates are typically available to borrowers depending on risk factors.If you have a strong trading history and well managed cashflow, your broker will be able to negotiate a better deal.

By using Swoop, you will be able to check your options as not all rates will be open to all customers. As a Swoop customer, you would have full visibility of your options and have a strong team of negotiators able to deploy a number of funding approaches that will add up to the right choice for your business. 

With the right broker on your side, now could be the perfect time to make a property purchase. 

Is now the time to get a commercial mortgage?

Despite a slow down in the market, Swoop has grown our commercial mortgage team over the last few years, simply because for some businesses, owning property makes sense – whatever the rest of the world is doing. In a challenging market, Swoop has been able to add a huge amount of value to our customers. 

A commercial mortgage can do more than buy your property: it can also consolidate your business’s existing debts into a lower-interest product. This frees up cashflow that you can reinvest, allowing you to expand your operations, hire new employees, or invest in new equipment.

In an inflationary environment, owning real estate can act as a hedge against rising costs. On a fixed rate, your monthly mortgage payment will stay the same, while the value of your property is likely to increase.

Owning your own property gives you greater control over your business space. You can make renovations, decorate as you please, and even sublet unused space to generate additional income.

The commercial real estate market is improving in many areas. If you purchase property now, you could see its value increase significantly over time, building equity for your business in the long term.

With more lenders looking for your business, you’re likely to get more favourable terms and conditions on your loan. This means you can potentially secure a lower interest rate, longer loan term, or lower fees.

Start your application with Swoop

The award-winning commercial mortgage team at Swoop is ready to help you make the next step in property. Get in touch now to speak to our team about your options and join our delighted customers.