Aldermore Market Report: On the fence?

By all accounts, 2014 appears to have started with a bang. Growth forecasts have been revised up to 2.6 per cent for 2014 from last November’s 2.4 per cent estimate and business investment is expected to increase by 6.6 per cent this year.

In addition, we are seeing ever rising confidence levels for investment from businesses for 2014: in the EEF Executive Survey of manufacturers for the year ahead, 62 per cent expected economic conditions to improve, and nearly a fifth of respondents said they expected to be investing significantly in domestic new capacity.

We are seeing this first hand. The volume of enquiries we are receiving in the commercial mortgages business has increased by 22 per cent. Meanwhile, the value of offers we have made is up 72 per cent in January this year, compared to January 2013.

Despite competition increasing in the commercial mortgage market space, the increasing business confidence and the fact that SMEs are more willing to invest their cash, are ensuring that transaction volumes are rising.

Pay growth is starting to pick up in some parts of the economy such as in the manufacturing and services sectors, which is also helping. This coupled with the fact that rental costs are on the rise, means SMEs might be more inclined to consider purchasing their own office space.

But there are some potential clouds on the horizon with the CBI recently saying that political uncertainty in the run-up to the 2015 UK elections is posing a risk to business investment. Katja Hall of the CBI said it could be “a real mood killer when it comes to firms deciding whether or not to make big investment decisions”.

With a fairly full political calendar ahead, worries include the next government’s attitude towards business, a possible EU referendum and the vote for Scottish independence in September.

At a time when SMEs are busy keeping up with the changing economic backdrop, new government policies and keeping up with their day-to-day challenges of running a business, attempting to predict the future political landscape is an unnecessary headache.

In addition to this, recent reports have complained of a lack of office space within the capital, and if Britain is to maintain a strong and broad-based recovery companies must be able to expand into new premises and invest in their businesses.

For those SMEs who are on the fence about whether to take the plunge and apply for a commercial mortgage, it is imperative that brokers and lenders match them with appropriate funding and terms for their situation, and advise them fully of their options.

For some it may be a little premature to expand, but for a large number a lack of proper information and guidance may be all that’s holding them back from taking the decision to further their businesses, and the lack of confidence may stem from apprehension of what course of action the next government will choose to pursue.

By Rob Lankey, Managing Director, Commercial Mortgages, Aldermore Bank