Investors pivot from simple resi flips to higher-yield commercial assets amid tighter margins
Bridging finance is increasingly being used for commercial and value-add transactions rather than straightforward residential flips, as cheaper funding and intense lender competition push investors towards higher-yielding, more complex assets, according to one specialist broker.
“There’s more capital in the market right now than there are viable deals, with a number of funders effectively competing for the same deal with the same funding lines,” noted Chris Oatway (pictured top), co-chief executive of mortgage brokerage LDN Finance.
“As a result, lenders are having to look at widening their criteria to find ways to deploy that capital, while still striking a careful balance between risk and pricing.”
Oatway said the core client base had not fundamentally changed following interest rate cuts. Instead, clients are restructuring deals and targeting different asset types.
“What has changed is how clients are trying to structure deals and the type of deals they are going for, which is dictated by the market in general and commercial assets seem to be gaining in popularity over residential,” he explained.
“With it being so challenging to source opportunities that genuinely stack up, borrowers are having to be more creative to make the numbers work, particularly in a market with rising costs and very limited tax incentives to build or acquire assets.
“The days of buying a straightforward flat, carrying out a light refurbishment and selling on for a healthy profit are largely behind us — transaction costs, increasing construction costs and interest have simply become too high for that model to work consistently.”
Development squeezed as costs and risk stay elevated
Rate cuts through 2025 have lowered funding costs, but Oatway said the shift in affordability for short-term borrowers has been gradual once fees and exit costs are included.
“Each rate reduction does make a difference over time, but because the cuts have been gradual, no single move has felt transformational in isolation,” he said. “When you factor in arrangement fees, exit costs and the realities of short-term funding, affordability hasn’t suddenly shifted overnight.”
For development in particular, Oatway said, the economics remain difficult despite easing rates. “In this market, no one can afford a property that someone can afford to build,” he pointed out.
“Structuring development finance at around 8% rather than 10% per annum is a meaningful shift, and with one or two further base rate reductions, sub-8% pricing becomes a realistic prospect. That would be enough to encourage many developers to revisit schemes that have been paused and start moving forward again.”
Traditional bridging use cases still dominate
According to Oatway, falling term mortgage rates have supported sentiment but have not fundamentally changed why borrowers use bridging.
“Bridging finance continues to be a growing and increasingly sophisticated part of the property finance market, and that momentum hasn’t slowed,” he said. “While falling term mortgage rates are certainly helping sentiment more broadly, demand for bridging is still primarily being driven by its traditional use cases — chain breaks, auction purchases and genuinely time-critical opportunities remain the core drivers of enquiries and completions.”
Lower rates are, however, widening the range of acceptable transactions. “As lenders pass on reductions where their funding is linked to base rate, bridging becomes more palatable for a wider range of transactions, particularly where exit strategies are slightly longer or more complex,” Oatway said.
He also noted that funding models are producing different pricing responses. “Those funded via swap rates often adjust pricing at different points in the cycle and in some cases have already priced in expected base rate reductions ahead of official changes,” he said. “Bridging remains very much a solution led by speed, certainty and flexibility rather than purely by pricing.”
Competitive pricing and the risk of a “race to the bottom”
Oatway welcomed sharper pricing but said that competition must not come at the expense of underwriting discipline.
“I’m all for healthy competition, it keeps the market moving and stops things stagnating,” he stated. “But there’s a real difference between competition and a race to the bottom.
“No matter how solid a lender is, if the pricing isn’t competitive, some deals simply won’t work in the first place. That’s why sharper pricing and increased lender activity are good news: they broaden access and give borrowers genuine choice.”
The danger, he argued, is when volume targets override risk assessment. “If lenders start chasing volume without fully understanding the risk, that’s when problems arise — especially in a market where deals are complex, exits can take longer than expected, and the quality of opportunities varies widely,” he said.
“The strongest lenders are the ones who remain disciplined: they price sensibly, underwrite thoroughly, and provide certainty from the outset rather than just advertising a headline rate.
“At the end of the day, competition is healthy when it’s built on experience and smart decision-making. It only becomes dangerous when the numbers take priority over fundamentals — and that’s a balance we all need to keep an eye on.”
Outlook: commercial focus, flexibility and practical support
Looking to the rest of 2026, Oatway expects the commercial segment in particular to remain active, provided lenders can combine keen pricing with flexible structures.
“I think there’s still plenty of potential in the bridging market, particularly in the commercial sector,” he said. “Lenders should be looking beyond headline rates and thinking about the different angles they can support — whether that’s below-market-value opportunities, assets with planning potential, or deals where there’s a significant gap between market value and vacant possession value.”
He said most cases now involve some degree of complexity. “The perfectly clean, textbook transaction we all hope for is rare — there’s almost always a quirk or a curveball halfway through that needs to be managed,” Oatway pointed out. “Experienced, hands-on teams can navigate those challenges, ensuring deals get over the line through proper risk management rather than simply ticking boxes for funding lines.”
Flexibility, Oatway added, will be key to maintaining activity. “Flexibility is absolutely critical right now,” he said. “Lenders who focus on saying ‘yes’ where possible, rather than looking for reasons to decline a deal from the outset, are the ones who will genuinely support short-term borrowers and keep the market moving. Affordability will improve where lenders combine competitive pricing with that level of practical, intelligent support.”
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