Bridging & Commercial Supplement — 2025 SME Market Outlook
SME Market Outlook 2025
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The first six months of the year were dominated by uncertainty as speculation about the outcome of the general election took hold. Borrowing was also expensive, with the Bank of England keeping interest rates at their highest level since 2008.
It was a tough combination. And businesses couldn’t be blamed for putting off any major investment decisions until later in the year.
Come summertime, we saw not only a Labour government elected with a secure majority, but inflation finally looked to be under control, too, with the UK hitting the Bank of England’s 2% target that June for the first time in three years. Borrowers also rejoiced as we saw the first of several reductions in the Base Rate – which many will hope is the start of a much longer trend.
These signs of stability were of course welcome. But, with interest rates still far higher than the hey-days of the 2010s and the effects of inflation still being felt, the costs of doing business remained far higher than several years before.
For many businesses, then, 2024 was simply a year of adapting to this new normal. A task many have achieved admirably. And the role brokers played in helping them find the finance to not just survive but remain competitive in that environment can’t be understated.
As we’ll see in this year’s SME Market Outlook report, brokers feel more cautious about predicting the same levels of growth in 2025 as they did in 2024. But, with many key elections now having taken place across the globe and an economic environment that feels a lot stabler than the same time last year, there are still many possible bright spots on the horizon.
Read on to uncover how brokers found 2024 and what they think 2025 might bring.
2024 PROBABLY FELT LIKE A YEAR OF TWO HALVES FOR COMMERCIAL PROPERTY FINANCE IN THE UK.
Steve Spinks Head of broker sales – commercial mortgages (South and Central)
2025 SME MARKET OUTLOOK REPORT
Each year, Allica polls the broker community to gauge their and their clients’ feelings about the market as it stands and their outlook for the year ahead.
Our focus remains on the established SME sector – that’s those businesses with between 5 and 250 employees – which are the beating heart of the UK’s ‘real economy’ and a critical part of our local communities.
This time around, we polled over 700 commercial mortgage brokers to understand where they see opportunities in 2025. Here’s what they said.
Looking back – brokers had a busy 2024
Despite the many challenges last year presented, business boomed for many brokers in 2024 – and it looks like that trend is continuing into 2025.
In our previous Q2 survey of 2024, 62% of the brokers we surveyed reported increased volumes of commercial mortgage applications from SMEs when compared to six months before.
Six months later, our Q4 survey showed mortgage application volumes stayed strong. 70% reported volumes staying the same or increasing since Q2. Nearly a third reported sustained volumes, a fifth reported increases of up to 10% and a seventh saw increases of up to 25%.
When we asked those brokers that had seen an increase why they had done so, nearly half (47%) said it was due to a larger number of businesses looking to raise finance to invest back into their business. This is a notable uptick from when we asked the same question six months earlier in Q2, when 37% said they’d seen an increase in applications for the same reason.
Clearly, while there’s been plenty of doom and gloom lately, there’s still many businesses looking to grow.
42% of brokers that had told us they’d seen an increase in applications put it at least in part down to a growing number of business owners wanting to purchase their premises. While a similar amount (39%) said it’s because more businesses were looking to purchase an investment property.
Encouragingly, only a fifth (22%) of brokers said they had seen an increase in applications due to a growing number of businesses needing finance simply to stay in business.
Why do you think there has been an increase in commercial mortgage applications?
Not all brokers reported an increase in applications, though. 30% said they saw decreased activity between Q2 and Q4. Unsurprisingly, half of these brokers pointed to high interest rates (54%) and high costs (50%) as the reasons for this.
With current trends and expert commentary suggesting interest rates should continue to gradually decrease in 2025, we should hopefully see fewer businesses citing this as a cause for holding off from seeking finance in 2025.
By far the fastest-growing reason for brokers seeing a decline in applications is SMEs struggling to find a lender that can offer them the right product. Between Q2 and Q4, this increased from just 4.6% to 13.6%. Still not a huge proportion, but an important issue to monitor this year.
Key application drivers in 2025
To help us understand how the new economic and political environment has affected businesses and what to expect in 2025, we wanted to dig deeper into the opportunities in the market for brokers to find growth.
We asked our broker community what the key change they’d seen over the past few months was compared to the first half of 2024, when the economic and political situation was very different.
It’s no huge surprise that, in the top spot, we had 39% of brokers noticing a growing number of businesses looking to refinance compared to at the start of the year. Just over a quarter of brokers highlighted an increase in capital raises (27%) as the main difference they’d seen. While a further 20% cited more businesses looking to purchase their premises as the key difference they’d noticed.
A sense of caution
Finally, we wanted to gauge the confidence of brokers and their clients for the year ahead. To start, we asked brokers how confident their clients are about growth this year. There was a real mix of responses, with a degree of caution being the prevailing sentiment.
Around 50% of brokers suggested a degree of concern about growth in 2025. The vast majority (43% of the total number asked) said their clients were just ‘somewhat concerned’. 7% said their clients were ‘very concerned’.
Just under a third (31%) said their clients were neutral about confidence in 2025, while 18% said they were feeling confident.
We also dug in to which sectors were going to be the main sources of growth this year. Construction came out top, with almost three quarters (72%) of brokers saying they expect to see some form of growth in 2025 – 12% said this would be high growth. Manufacturing was next, with 57% of brokers saying they anticipate growth for the sector this year.
The picture was slightly less rosy for the hospitality and retail sectors, however, with the majority of brokers saying they expect to see no growth for those sectors. Just 24% and 37%, respectively, said they see growth on the cards this year.
What level of growth do you anticipate for the following sectors in 2025?
Final thoughts
With brokers reporting a significant rise in application volumes both in last year’s SME Market Outlook report and our mid-2024 survey, it shouldn’t be too disconcerting that brokers are predicting a more stable year in 2025.
The jump in activity we saw last year suggests that – for all the challenges the SME sector faced following the pandemic – those that have made it out the other side are businesses built on resilience and have adapted well to the new economic consensus we now face.
Looking ahead, the stability of a majority government and potential of a downward trend in both interest rates and inflation has set businesses up well for exploring growth in 2025 with a degree of confidence. Brokers will be looking to empower businesses to take advantage of cheaper borrowing – or at least, less uncertainty – and find these opportunities, be that through refinancing existing debt or new finance.
Sensibly, though, there is still a sense of caution in the market as business owners further adapt following the rise in employer National Insurance contributions. This is another example of how brokers can add real value, helping businesses combat that increase in staff costs by unlocking extra headroom or cutting costs elsewhere.
2025 is going to be another challenging but exciting year for brokers and SMEs alike. And the team at Allica is looking forward to working closely with our broker community to support you and your clients as we make the most of the year ahead.
BROKERS WILL BE LOOKING TO EMPOWER BUSINESSES TO TAKE ADVANTAGE OF CHEAPER BORROWING
Charissa Chang Head of broker sales – commercial mortgages (North and Midlands)
A BROKER’S VIEW
Piotr Twaits, Managing Director at Synergy Commercial Finance
With rising commercial property rental costs, an increasing number of businesses are likely to consider property ownership, driving greater demand for commercial mortgages. This trend will be further fuelled by the more resilient industries experiencing growth despite challenging economic conditions. Additionally, as fixed-rate deals approved during periods of cheaper interest rates come to an end, businesses will also seek to remortgage to secure the best rates.
Matthew Martin, Director at Align Property Finance
The pace and extent of base rate reductions will be crucial. Lower rates that reduce borrowing costs make commercial mortgages more attractive. The timing and magnitude of these cuts will significantly influence market dynamics. Additionally, government policies aimed at fostering a stable economic environment, coupled with moderate GDP growth and strong employment data, will be essential. These factors will boost investor confidence and drive demand for commercial properties. Personally, I believe these factors point to a favourable environment for growth in the UK commercial mortgage market in 2025.
Phil Gray, Managing Director at Watts Commercial Finance
As a business, we believe the growth in the commercial mortgage market in 2025 will be driven by several factors. These include economic stability following recent government and budget changes, increased availability of funding, and the diversification of investors shifting their focus from residential to commercial assets. These factors are creating a positive outlook for the market, with businesses and investors keen to capitalise on opportunities within the commercial sector.
Mark Flanagan, Director at CFP Group
In 2025, growth in the commercial mortgage market will be driven by increased investor confidence, favourable interest rates, and a surge in demand for commercial real estate as businesses expand post-pandemic. Our SME clients are also increasingly seeking refinancing to capitalise on lower interest rates, improve cash flow, and fund expansion plans, reflecting a broader trend of business optimism and growth.
Stephen Todd Chief Commercial Officer & Co-Founder at VAS Valuation Group
VALUATIONS IN 2025
When comparing 2023 to 2024, the biggest trend we experienced was an increase in semi-commercial reports—this category almost doubled in value to close the year at £2.2bn.
In the last quarter of 2024, we saw this upward trend continue in terms of report volume, indicating that, going into 2025, this is a property type on the rise.
These mixed-use assets can offer a higher yield than standard residential BTL, and we have witnessed the diversification of property investment portfolios in the last 12 to 18 months as landlords seek better returns.
The leisure sector remains relatively suppressed, from our report volumes, but retail is showing signs of improvement—a welcome consequence of relative economic stabilisation as we neared the end of 2024.
Our view is that recovery in the commercial sector has been quite slow, following a number of domestic and global events over the past five years or so, but that we are seeing promising activity from a valuations point of view. We added a whole host of commercial property categories to our portal in 2024 in order to cater for the myriad sub-sectors that are coming through to us for valuing, which we view as encouraging.
Although we don’t have direct insight into funding criteria and outcomes post valuation instruction, for owner-occupiers, it is expected that trading levels and meeting ICRs may continue to impact funding availability for borrowers in certain parts of the market, especially as interest rates remain relatively high, thereby affecting affordability.
For commercial investors, location and tenant demand (especially considering looming EPC requirements) is something lenders will assess closely—many of whom are rebalancing their books and turning their attention to sub-sectors such as industrial and logistics, as opposed to office assets, for example.
We hope to see lenders innovate and listen to the SME community when reviewing their product offering in order to continue to lend to good businesses in the UK.
Something we are passionate about at VAS is our ability to access the right valuation firm for every imaginable property and business type, leading to a more streamlined process and, ultimately, more lending. Our role in valuation risk management on behalf of lenders means more confidence to support SME borrowers.
ABOUT ALLICA BANK
surpassed
£3bn
in business lending to UK businesses in November 2024, including £1bn in new lending completed that year alone.
In August 2024, Allica acquired bridging lender Tuscan Capital, marking our
first entry into the bridging market.
Allica is a bank built especially for established businesses with between 5 and 250 employees.
These businesses make up a third of UK employment and turnover, yet the service they get from the big banks is increasingly impersonal, inconvenient, and poor value. We don’t think that’s right.
Allica Bank is on a mission to give established businesses the no-nonsense banking they deserve. We offer the kind of face-to-face banking that businesses used to get, supercharged with modern technology. It’s how business banking used to be, just better.
92%
of brokers rated Allica BDMs’ expertise and market knowledge as ‘excellent’ or ‘good’
Our team of expert business development managers and underwriters is committed to providing our broker partners with clarity, consistency and collaboration every step of the way.
Commercial Lender of the Year
We were named the at the Bridging & Commercial Awards 2024 for the fourth consecutive year.
