News

As we move into 2026, the commercial finance and specialist mortgage market continues to evolve, the search for stable and performing yield remains a defining theme, and is shaping investment behaviour across the sector.

Investor appetite for stable and improved returns is maintaining momentum behind specialist residential assets. This is expected to continue through 2026, alongside strong interest in semi-commercial properties, which offer a blend of commercial upside and the security of residential rental income. Flexible planning rules also accelerate the repurposing of commercial buildings, supporting mixed-use and residential conversions fuelling the need for property development finance, refurbishment and conversion facilities. The growth of e-commerce means logistics hubs and mixed-use developments should continue to attract investors.

Despite these opportunities, the housing shortage remains acute. Government ambitions to boost supply continue to clash with rising costs and tight developer margins, the concern over heightened costs of materials replaced with that of labour, making careful financial structuring essential.

The market is also still reacting to the impact of the Autumn Budget:

• New property income tax rates from April 2027: 22%, 42%, 47%.
• Dividend tax rises by 2% from April 2026.
• Personal tax band freeze extended to 2031.
• From April 2028, council tax surcharges apply to homes over £2m.
• Business rates increase for properties valued above £500k from April 2026.
• Higher minimum and living wages from April 2026 likely to push construction costs further through labour costs.

What This Means for Lenders

Demand for funding remains strong, but rising taxes and cost pressures mean lenders must stay focused on project, investment and trading viability, borrower resilience, and realistic build-cost assumptions. The most resilient opportunities continue to sit in commercial, specialist residential, semi-commercial, and well-structured repurposing schemes.

Recent experiences include lenders further stressing cashflow for additional cost mitigants for both commercial and residential investment – some discounting gross rents by up to 25% to account for voids and management costs before applying standard DSC criteria.

Macroeconomic Conditions

• Inflation, which peaked at 3.8% in 2025, is expected to ease back toward the Bank of England’s 2% target this year.
• Slower wage growth and reduced pressure from service-sector inflation should support this downward trend.
• If inflation continues to fall, the Bank of England may have room for limited rate cuts—potentially in April and July—bringing the base rate down by year-end with a long term market opinion around 3.50%.
• Rate cuts are expected to be fewer and slower than last year, meaning borrowing costs will remain consistent.

Growth Outlook

• UK GDP growth held up better than expected at 4% last year, placing the UK mid-table among G7 economies.
• Forecasts for 2026 suggest similar growth at around 3%, supported by:
  • Increased household confidence and reduced saving rates, which could stimulate spending.
  • Government commitments to accelerate housebuilding.
  • Faster-than-expected adoption of AI, potentially boosting productivity and long-term growth.

Risks and Lending Implications

Political uncertainty—particularly around local elections and potential leadership changes—could weaken sterling and dampen business confidence. SME repayment capacity remains fragile, with many firms still recovering from recent economic disruptions. Any resurgence in uncertainty may lead to more cautious investment behaviour, higher credit risk or interest rate volatility. While the picture is improving, lenders are expected to remain vigilant around cash-flow resilience and debt-servicing ability.

FinTech, Green Energy and ESG: Smarter Lending in 2026

Lending is becoming increasingly data-driven, with advanced analytics and AI giving lenders real-time insight into payment behaviour, sector performance and credit risk. This enables more precise, confident lending decisions into 2026 – or so we are told. FinTech partnerships are accelerating the shift toward embedded finance, integrating lending directly into business platforms such as accounting and operational software to reduce friction for SMEs.

Growth in green energy finance is also set to continue, with strong demand for funding renewable technologies and ESG-aligned businesses as sustainability becomes a core investment priority.

As ever the Omega team is on hand to discuss projects and connect our partner networks to lenders that can meet their clients’ needs and remain ahead of lender criteria changes, adopting new policy and rate improvements.