Commercial Mortgage Lending Outlook for 2025
As of January 2025, the UK’s commercial mortgage lending landscape is experiencing notable shifts influenced by current interest rates and evolving economic conditions. The market is extremely fluid with lenders changing rates and withdrawing products regularly.
Current Interest Rate Environment
The Bank of England’s base rate stands at 4.75%, Interest rates and Bank Rate | Bank of England a slight reduction from 5.25% in 2024. This adjustment reflects efforts to balance persistent inflationary pressures with the need to support economic growth. Despite this decrease, interest rates remain relatively high compared to the historically low levels observed in the early 2020s.
Impact on Commercial Mortgage Rates
Commercial mortgage rates in the UK are influenced by the base rate, lender margins, and borrower risk profiles. As of January 2025, average rates for semi-commercial mortgages range between 6% and 8%, while standard commercial mortgage rates vary from 5.5% to 9.99%. These rates are contingent on factors such as loan-to-value ratios, property types, and borrower creditworthiness.
Lending Trends and Market Dynamics
The commercial property sector has faced challenges due to rising interest rates since 2022, leading to a 20% decline in property prices and a slowdown in deal-making. However, with interest rates peaking, transaction volumes are beginning to recover, indicating a potential stabilization in the market.
Forecasts suggest that bank lending to businesses is set to grow, with an expected increase of 5.6% in 2025 and 6.2% in 2026. This anticipated growth is attributed to lower borrowing costs and an improved economic outlook, which may boost demand for commercial mortgages.
Considerations for Borrowers
Prospective borrowers should be aware of associated fees, including broker fees (approximately 1%), arrangement fees (1-2% of the loan amount), property valuation fees (around £500 – 2,500), and legal fees. These costs can significantly impact the overall expense of obtaining a commercial mortgage.
Future Outlook
While the current interest rate environment presents challenges, the forecasted growth in lending and potential stabilization of property prices offer a cautiously optimistic outlook for the commercial mortgage market in the UK. Borrowers and investors should stay informed about economic indicators and market trends to make strategic decisions in this evolving landscape.
If you would like to discuss a commercial loan, give us a call – 07534 186 689
Contact Us – York Lane Finance
Further reading:
EY – Bank lending to UK businesses and households to return to growth this year, and accelerate over 2025 and 2026
