UK commercial property lending jumps 29% as borrowers race to refinance

New lending for UK commercial real estate (CRE) rose 29 per cent year on year to June 2026, reaching £28.7bn, the latest Bayes Business School market survey reveals.

With this result, the total annual volume of new lending could potentially be higher than 2025, reaching another peak in the cycle.

Report author Dr Nicole Lux, said: “The striking feature of this market isn't a shortage of money. It's where that money is going. Lenders are competing hard to refinance existing loans even as borrowers prepare for the possibility of higher interest rates. From January, around £33 billion of loans were expected to mature during 2026 – fuelling the refinancing pipeline.”

Since the start of 2026, borrowers have been taking advantage of LTV levels that are higher than four to five years ago, and which have better ICRs and loan pricing terms. Dr Lux added:

“With expectations that interest rates will rise to year-end 2026, we could see another record year of new lending and refinancing volumes.”

However, limited transaction volume, over‑concentration in residential and logistics sectors, and higher risk from alternative assets has created risk profiles of uneven vulnerability across lender groups.

These crowding risks have created competitive pressure among lenders leading to compressed margins and possibly weaker covenant discipline.

Growing concentration in residential and logistics asset debt increases lenders’ vulnerability to sector‑specific shocks (e.g., rental regulation, logistics yield compression and supply chain volatility).

More than two-thirds of lenders are chasing logistics transactions or assets in the living sector. Since the beginning of 2026, lenders have stepped away from lending to the prime office sector, no longer seeing it as a desirable option.

The most popular development financing projects are residential and student housing. Both primarily supplied by debt funds and UK banks.

Debt funds complete long march to No 1 spot

In H1, 2026 debt funds were, for the first time, the primary source of residential and commercial development funding. Some 32% of their lending is directed towards development projects.

However, the report suggests that in many areas the pressure on loan pricing might no longer be aligned with the sectors’ risks.

Other revelations from the bi-annual survey include:

• Constant refinancing has improved the overall credit quality of loan books with 69% of loans below 70% LTV – together with overall improved ICRs and fewer lenders reporting defaults
• ICRs might deteriorate in the future. The large number of unhedged loans (42%) presents an increasing risk to interest rate volatility and raises the likelihood of sudden covenant failures. Lenders also face refinancing risks on hedged loans as they mature and unwind.
• Debt Funds have tightened pricing across secondary assets, reducing margins despite elevated risk profiles. This behaviour suggests aggressive competition for deal flow and potential risk drift in private credit.
• The most significant pricing adjustments were found for the living sectors, especially residential. Debt Funds have adjusted their pricing to 340bps from 350bps over six months to June 2026; and UK Banks to 209bps from 285bps. The scale of tightening by banks indicates renewed competition, which may erode risk‑adjusted returns.
• In student housing, Debt Funds tightened to 266bps (from 269bps) and UK Banks to 231bps (from 281bps). The sharper bank reductions highlight pricing compression risk in sectors with strong demand but rising operational uncertainties.
• Residential development finance became cheaper, dropping to 447bps from 479bps in six months, despite continuing contractor, delivery and refinancing risks. This compression indicates competitive pressure overriding risk fundamentals.
• Commercial pre‑let development margins compressed by 19bps to 364bps, driven by both Debt Funds and UK Banks. Development margins continue to fall despite a peak‑level development pipeline, signalling a potential mispricing of development risk. While pre‑lets reduce leasing risk, construction and cost‑inflation risks remain elevated, suggesting margins may not fully reflect underlying volatility.

Structural trends are becoming more pronounced. Debt Funds now play a central role in development finance; banks remain the backbone of senior lending; and market concentration persists, with a small cohort of lenders driving the majority of origination. Just six lenders accounted for 53% (£15bn) of all new lending.

The bi-annual report analyses £201bn of debt tied to commercial real estate, with an additional £34bn of social housing debt held by 11 lenders. Nearly half of the lenders are also active across Europe, reporting an additional £50bn of European real estate debt.

You can find further information and purchase the report here.

The report sponsors’ insights on the latest data.

Aparna Sehgal, a Partner at Winston & Strawn London LLP, said:

“What stands out in this data set is the disconnect between sentiment and deployment. Despite geopolitical uncertainty and expectations of higher rates, lenders continued to put capital to work. Behind the deals done likely lay well-structured opportunities and conviction in the underlying asset class. Liquidity doesn't look to have been the constraint on more getting done; conviction may have been.”

Neil Odom-Haslett – Association of Property Lenders

“The report evidences that the UK CRE lending market is in good health with plenty of competition among lenders in key asset classes despite the economic challenges. While new transaction remained muted, there is plenty of liquidity in refinancing (particularly in the logistics and living sectors) with borrowers keen to lock in (and taking advantage of) higher LTVs and tighter pricing, ahead of expected rate rises as lenders offered competitive terms to secure deals. Have we reached the ‘margin floor’? Time will tell.

The debt funds and alternate lenders now dominate development finance, allocating 32% of lending to development, especially residential and student housing, complimenting the more traditional lenders.”

John Hardie – CBRE Debt & Structured Finance

“Lenders are becoming more discerning. Headline margins are tightening, but the averages mask big differences between lenders. On secondary offices, more than 100bps now separates the keenest and most expensive lender groups at similar leverage. With six lenders writing more than half of all new loans, the best terms rarely come from the first call. The borrowers capturing this liquidity are the ones running a broad, competitive process across banks, insurers and debt funds.”