"Optimistic but cautious": brokers look ahead at 2024

As Britain’s businesses settle into 2024, we thought it would be a fine time to get something of a temperature check from the broker community. We surveyed our established commercial mortgage broker network to get a sense of what the industry is expecting, hoping for, and watchful of in the year ahead. 

We received a range of interesting and insightful responses, for which we are hugely grateful. Bringing them together in one place, we hope, will be useful for brokers and those in the wider business community with an eye on borrowing this year. 

Confidence is growing, albeit slowly 

David Grant, Director at Axis Commercial Finance, told us: “Hopefully the base rate has reached a plateau at 5.25%. If so, confidence should return and it’s really just a case of the wider market becoming used to a base rate around 5%. Past experience shows us that there is usually about a six-month lag, so I expect it’ll be late Q2 2024 before we start to see the ‘green shoots’ of confidence returning to SMEs.” 

Chris Preston, Head of Commercial Finance at Cornerstone Commercial Finance, shared the following: “Demand has remained strong and is set to continue in 2024, fuelled both by clients’ attitude of ‘getting on with things’ and some good opportunities presenting themselves. 2024 will undoubtedly remain a challenging marketplace, but, with skilled support and good structuring, clients will still be able to access the funding support they need.” 

And Jagdev Singh Saran, Managing Director of Goldwire Financial Services, explained that: “Our clients remain optimistic but cautious about growth in 2024. Hopefully the recent drop in inflation will halt base rate escalation, which will further stimulate the market after a sluggish 18 months.” 

Changes in borrowing behaviour 

Natalie Glover, Associate at SPF Private Clients, shared the following perspective: “Previously there was heavy demand for fixed rates to protect against any further steep hikes and to secure the maximum debt service coverage ratio (DSCR) stretch, but I am starting to see more clients looking for variable rates in hope that they will catch the wave back down.” 

Charn Gandham, Principal at Chancery Consultants, also told us: “As rates decrease, we can also expect existing commercial borrowers with low LTV to move from high street banks to challenger banks with a positive attitude to lend and quicker lead times to leverage and grow portfolios.” 

Owner-occupied lending remains bullish 

Harry Singh, Managing Director at Veer Capital, explained: “With average commercial mortgage rates around 8%, getting a 9 or 10% yield on a property just doesn’t make financial sense. Owner-occupied purchases were steady in 2023 and will continue into 2024, but a lot of my clients are hopeful this will filter down to commercial mortgage rates. Once this happens, they will start actively investing in the commercial property sector.” 

Haydn Thomas, Chief Commercial Officer at Cornerstone, added another view on this: “We expect the trend of owner-occupied commercial mortgages to continue and potentially increase in 2024. Businesses are able to take advantage of landlords looking to offload non-performing assets and avoid paying increased rents.” 

Wider economic connection 

Understandably, much of the movement expected by commercial brokers hinges on wider economic patterns. 

Kevin Morgan, Managing Director at Cornerstone, shared: “Real incomes have started recovering and tax cuts and grants are helping further. PMIs suggest that economic stagnation could end soon. Consumer confidence is at its highest level for two years, which bodes well for spending next year.” 

Harry Singh noted a connection with lower rates for residential mortgages: “Where we’ve seen interest rates dropping for residential and buy-to-let mortgages, I know a lot of my clients are hopeful this will filter down to commercial mortgage rates.”  

And Charn Gadnham highlighted how some landlords are finding ways to combine the two: “As landlords look for ways to diversify and secure higher yielding properties, we find an increasing number of buyers looking into multi-unit retail with residential uppers. Owner-occupier businesses can cut their risk on the retail business by benefiting from a rental income.” 

The rest is politics 

We’ll close this piece with a pertinent comment made by Jagdev: “we feel that demand for commercial mortgages will increase throughout the year, but the true picture will emerge once the battle lines of the next general election are drawn.” 

An election and its swathe of campaign-trail promises could turn everything upside down once more. We’ll leave the predictions on this to the broadsheets. 

A “shift in the right direction” 

Before going any further, we want to thank each broker for their time and contributions. We are grateful for their insightful comments and their permission to share them with us. 

The picture they have painted, overall, is one of cautious optimism. The first half of the year might be slow to start, but the second half of the year could pick up nicely. 

While much remains outside of our control - whether knock-on effects from wider market movements or the great game of politics - it seems that there are pockets of opportunities to be found no matter what. Brokers are seeing positive signals from interest in owner-occupied mortgages and mixed-use units, as well as the chain reaction coming from lower residential mortgage rates. 

Natalie Glover summarised it best: “Although none of us have a crystal ball, we are of the positive opinion that things should start to shift in the right direction during 2024. SMEs are a huge part of our economy, and we look forward to helping them with their growth plans.”