UK commercial property lending increased by 29% year on year to £28.7 billion in the 12 months to June 2026, as borrowers moved to refinance existing loans ahead of potential interest rate rises.
The latest Bayes Business School survey found that refinancing is driving activity, with approximately £33 billion of loans expected to mature during 2026. The volume of new lending in the first half of the year puts the market on course to potentially exceed 2025 levels.
Borrowers are taking advantage of more favourable loan-to-value ratios, improved interest coverage ratios and tighter pricing compared with four to five years ago. Lenders are competing to secure refinancing business, although the pressure to win deals is raising questions about whether loan pricing adequately reflects risk.
Residential property and logistics remain the main areas of lender interest, with more than two-thirds of lenders targeting these sectors. Prime offices have become less attractive to lenders since the start of 2026, while residential and student housing projects are attracting development finance from banks and debt funds.
Debt funds became the leading source of residential and commercial development funding for the first time in the first half of 2026, allocating 32% of their lending to development projects. Banks continue to play a central role in senior lending.
Competition has compressed lending margins across several property sectors. Residential development finance margins fell to 447 basis points from 479 basis points over the six months to June 2026. For residential lending, UK bank margins declined to 209 basis points from 285 basis points, while debt fund margins narrowed to 340 basis points from 350 basis points.
Student housing lending also became cheaper, with UK bank margins falling to 231 basis points from 281 basis points and debt fund margins easing to 266 basis points from 269 basis points. Commercial pre-let development margins declined by 19 basis points to 364 basis points.
Real Estate Credit Investments Limited (LON:RECI) is a closed-end investment company that specialises in European real estate credit markets. Their primary objective is to provide attractive and stable returns to their shareholders, mainly in the form of quarterly dividends, by exposing them to a diversified portfolio of real estate credit investments.
