Economic stability, rate cuts, and lender innovation expected to drive recovery
Executives of a digital bank have expressed cautious optimism for the commercial real estate (CRE) and housing markets in 2025, citing economic stability and the potential for interest rate cuts as key factors supporting growth.
Speaking on the outlook for CRE, Tom Renwick (pictured left), head of business banking at Atom bank, acknowledged the hurdles faced in 2024 but pointed to signs of recovery in the coming year.
“The economy looks to be on sound footing, with inflation under control, the expectation of interest rate cuts to come, and GDP growth of around 1% to 1.5% for the year ahead,” he said.
Renwick forecasted a rebound in SME lending, driven by a combination of lower borrowing costs and businesses’ growing appetite for investment. He noted that challenger banks and specialist lenders, which have outperformed the UK’s major high street banks for three consecutive years, are well positioned to capture a significant share of that demand.
In CRE, Renwick predicted uneven recovery across different sectors. London’s tourism industry, buoyed by strong performance in 2024 and projections of increased inbound travel, may prompt heightened investor interest in hotels, he suggested. However, challenges remain in the office market due to the shift to remote and flexible working.
“While there is optimism for improvements in CRE, we should expect to see notable variances in the recovery between different sectors,” Renwick said, adding that potential rental growth in the office segment could emerge due to limited availability of high-quality space and possible growth in office-based employment.
On the housing market, Richard Harrison (pictured right), head of mortgages at Atom bank, emphasised the need for innovation and flexibility from lenders to support first-time buyers amid ongoing affordability challenges.
“Housebuilding is clearly a big focus of the new government, and that’s welcome,” Harrison said. “Layers of complexity within the British planning system means that as a nation, we haven’t built enough homes to meet demand for decades.”
Harrison called on lenders to adopt more flexible approaches, particularly regarding maximum loan-to-value (LTV) ratios, and to provide greater support for borrowers with small deposits. He stressed that enabling access to the housing ladder for first-time buyers is critical, given the impact of rising house prices, surging rental costs, and the withdrawal of schemes like Help to Buy.
Harrison also addressed the growing number of borrowers falling into the near-prime category due to recent cost-of-living pressures.
“Analysis last year from the FCA said around six million Brits had missed a payment, but if those issues were temporary, then they may now be looking to access mortgage finance,” Harrison said.
“As an industry, we need to see more lenders supporting these customers not only with their needs today, but also helping them regain prime status should they show improvement.”
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