Interest rates are coming down gradually, and lending growth is expected to see an uptick
The mood of the current commercial lending market is one of ‘cautious optimism’, boosted by some economic stability, including a decrease in interest rates, according to Tom Renwick (pictured), head of business lending at Atom bank – but the potential impact of President Trump’s ongoing tariff war isn’t far from the minds of its clients.
“Whilst the economic backdrop has seen some stabilisation, businesses remain watchful under the shadow of potential transatlantic trade headwinds,” Renwick told Mortgage Introducer. “Lending growth is projected to see a modest uptick during the year, driven in part by the anticipated, albeit gradual, decrease in interest rates and a resilient demand, in particular for working and growth capital.”
Atom’s latest survey of commercial brokers finds that the majority are still seeing growing demand from business clients, especially for refinancing and growth capital. “The commercial real estate sector continues to face specific pressures,” Renwick noted. “While there are pockets of strength, particularly in prime industrial and logistics assets fuelled by the enduring growth of e-commerce, other areas - including secondary office and some retail spaces - are undergoing a period of recalibration. The rise of hybrid working models and shifting consumer behaviours are prompting a re-evaluation of space requirements and, consequently, impacting property valuations and rental yields. Despite these headwinds, there is a notable increase in interest from investors seeking value opportunities.”
Atom recently changed its stressed interest rate for commercial mortgages, guided by the mortgage advisers who wanted to see more flexibility. “This adjustment was a direct response to valuable feedback from our broker partners,” Renwick said. “They highlighted that our previous method for stress-testing affordability on variable rate commercial loans was limiting and proving overly cautious, particularly in light of current market expectations, or implied interest rates, which suggest a potential stabilisation or easing in the base rate outlook. This meant the stress test was potentially limiting the borrowing capacity for viable businesses.
“We deeply value our dialogue with brokers - they are at the coalface and understand borrower needs intimately and so we looked at ways in which the stressed interest rate could be improved. That led to the simplification, where affordability assessments now use the formula of margin plus base rate plus 1%. It’s easy to understand, and means that borrowers may be able to access larger loan amounts.”
For growing SMEs or commercial property investors trying to make the most of market opportunities, that shift can make all the difference, in Renwick’s view. “We are committed to supporting SMEs, and that means structuring policies that will help them unlock growth, rather than imposing unnecessary barriers which will simply hold them back,” he said.
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How important is product price for commercial customers?
In the current climate, product price remains a significant factor for commercial customers when seeking finance, acknowledges Renwick. “With interest rates having increased significantly in recent years from a prolonged period of historic lows, businesses are understandably focused on securing competitive borrowing costs to manage their outgoings and maintain profitability. While rates are now coming down, the era of ultra-low interest rates has receded, prompting a more discerning approach to debt.”
Falling interest rates are now the single biggest driver behind increased appetite for borrowing, Atom’s research suggests. “It’s also important to recognise the value of bespoke, risk-based pricing,” said Renwick. “While standard rate cards offer simplicity, they inherently fail to capture the unique risk profile of each borrower. This is where the importance of risk-based pricing truly comes to the fore. For lower-risk businesses, it means access to more competitive pricing that rewards their strong standing. Conversely, it allows lenders to responsibly extend credit to businesses that might appear riskier under a blunt, one-size-fits-all approach.” He added: “We believe in delivering pricing that is not only sustainable for the lender but more equitable for the businesses that we support, and our previous work with brokers shows they want to see more of this from lenders operating in this particular market.”
He continued: “However, it would be an oversimplification to suggest that price is the sole driver of decision-making. Brokers and SMEs are looking for speed and certainty, from lenders that genuinely understand their sector. It’s why challenger banks often stand out from high street lenders, because of that combination of fairer pricing, faster decisions, and technology that has been designed to provide brokers and their clients with a smoother experience. In this environment, it’s about value, not just headline rates.”
Meanwhile, Renwick urges commercial brokers to explore the Growth Guarantee Scheme (GGS) launched in July 2024, which is designed to support access to finance for small businesses as they look to invest and grow. Its extension underscores the government's commitment to fostering a vibrant and resilient SME sector, he suggests, but it is under used and it is time-limited - due to close in March 2026. “It represents a great opportunity for commercial brokers,” he said. “There are many SMEs who are simply unaware of the scheme, and how it could support their businesses, and brokers can benefit by acting as educators.”
