Lending in the sector is expected to soar in the next four years, rising 32% from an estimated £90bn in 2023 to £118bn in 2028, according to research carried out by specialist lender, Together.

The research found that nearly one in five property investors plan to pursue retail projects in the next 12 months, with housing developments and student accommodation cited as the most appealing commercial property investment opportunities during this time. This was followed by housing developments and luxury residential properties.

Demand for commercial finance is certainly on the up and Norton Broker Services has seen a notable upturn in the number of enquiries related to commercial property investment over the last couple of months.

This has been driven by several factors such as falling inflation and the recent cut to the base rate, both of which have instilled an element of confidence in investors, many of whom are seeking opportunities to diversify their portfolios and spread risk across a number of asset classes.

Commercial property finance is commonly used by property investors to finance large scale projects such as housing developments, luxury residential properties, retails sites and student accommodation. It can also be used to purchase and develop office space, hotels and industrial and manufacturing sites.

This area of the specialist lending market can be extremely complex, particularly for those unfamiliar with how it works, which is why working with a specialist lender or broker is integral to achieving a successful outcome.

•   B&C Awards 2024: The Video
•   Norton Broker Services secures £244,000 bridging loan
•   Norton Group hits 50 year milestone

Commercial property purchases tend to be more complex than residential properties due to the multiple different classifications used to determine the type of financing needed. The type of financing available depends on what the funds will be used for and factors such as the linked yield, the remaining lease terms, the number of tenants and location of any planned developments are also being taken into consideration.

How the financing is structured can also be varied and complex. Large-scale projects for example, will have multiple layers of financing and exit strategies at various stages of the development. In contrast, smaller projects are likely to be more straightforward.

Commercial mortgage loans often start at £30,000 and rise to multi-million pound loans. They can be secured on terms of up to 25 years and taken out on an interest only and capital repayment basis. LTVs of up to 80% are standard across the industry, although in some cases, these can increase to 100% LTV provided there is an additional security.

Deposits are a key component of commercial mortgages and many lenders will usually require a significant down payment of between 25% to 40% of the property’s purchase price. The exact amount is usually dependent on the property type, rental income as well as other factors related to the development.

Having a clear exit strategy is also key to any successful commercial finance application, which is where brokers and packagers specialising in this niche area of the market can play a vital role.

Specialist distributors understand that no two projects are ever the same, and that the chances of running into problems or experiencing delays increase with the scale of the development.

Norton Broker Services are well placed to help brokers unfamiliar with commercial finance navigate the intricacies of this market and achieve a successful outcome for all their clients.