Commercial property lending has been on the rise compared to residential due to increasing rates.
- In 2023-24, commercial transactions increased to 10.6% from 8.0% in 2020-21, showing significant growth.
- Residential lending has struggled with more stringent mortgage rules and climbing house prices.
- Residential transactions saw a notable decline, dropping 11.2% in 2022-23 after peaking in 2021-22.
- Early indications suggest a market rebound with interest rate cuts making finance more affordable.
Rising mortgage rates have shifted the balance from residential to commercial property lending. According to easyMoney’s analysis of Bank of England data, commercial transactions represented 10.6% of the market in 2023-24, a significant increase from 8.0% in 2020-21. This shift highlights the growing prominence of the commercial sector amidst challenging economic conditions.
The residential property market has faced considerable hurdles with the introduction of stricter mortgage regulations and ever-increasing house prices, making it difficult for homebuyers to secure financing. These challenges led to a peak in residential transactions during the 2006-07 financial year when mortgage finance was readily available. However, conditions have tightened significantly since then.
The 2020-21 period witnessed another surge in residential transactions due to the Bank of England’s base rate hitting a record low of 0.1%, essentially offering consumers an incentive to purchase. Yet, the subsequent rise in interest rates has not only halted this momentum but reversed it, with a marked decrease in transactions by 11.2% in 2022-23, and a further decline into 2023-24.
Comparatively, the commercial property market has shown relative stability. The drop in non-residential transactions was minimal, from 124,860 in 2021-22 to 118,360 in 2023-24. This sector’s resilience can be attributed to investors’ capacity to absorb the higher borrowing costs, unlike their residential counterparts.
Looking ahead, there is optimism for a recovery in property transactions. The Bank of England’s recent interest rate cut by 0.25% in August 2024 is expected to boost affordability and encourage both residential and business consumers to engage in the property market. Jason Ferrando, CEO of easyMoney, remarked on this potential upswing, stating that “more consumers and businesses are taking advantage of the cheaper mortgage finance available this year,” indicating a cautiously optimistic outlook.
The property lending market is navigating through significant changes, with both opportunities and challenges ahead as interest rates adjust.
