Rising mortgage rates have affected residential property lending more than commercial, with the latter gaining a larger share of the market over the past few years, according to analysis by easyMoney.
Peer-to-peer real estate investment platform easyMoney analysed Bank of England mortgage approval data to measure the balance between residential and commercial transactions since the 2005-06 financial year.
The research found that in 2023-24, non-residential sales made up 10.6% of all market transactions, up from 8.0% in 2020-21.
Expensive mortgage finance has been a hurdle, but commercial property investors seem better equipped to handle the higher costs.
Residential transactions peaked in 2006-07 at 92.6%, thanks to a plentiful supply of mortgage finance.
Since then, tighter mortgage rules and rising house prices have made it tougher for residential buyers.
There was another peak in 2020-21 at 92.0%, when the Bank of England base rate hit a record low of 0.1%.
In the past 10 years, commercial lending has surged compared to residential, with residential transactions climbing by an average of 1.4% per year, while non-residential grew by 2.1%.
The volume of residential lending peaked in 2021-22 with 1.37 million transactions, boosted by the stamp duty holiday.
However, rising interest rates led to a drop of 11.2% in 2022-23 to 1.22 million transactions, and a further decline of 17.8% to just over one million in 2023-24.
In contrast, the commercial market was more stable, with non-residential transactions falling slightly from 124,860 in 2021-22 to 123,430 in 2022-23 (-1.1%) and then by 4.1% to 118,360 in 2023-24.
While property lending fell, especially in the residential sector, transaction levels are expected to rebound in the 2024-25 financial year.
Early data reveals that mortgage approvals in June 2024 were 26.5% higher than the same month last year.
The Bank of England has started cutting interest rates again, reducing them by 0.25% on 1st August, with at least one more cut expected by the end of the year, making mortgage rates more affordable.
Jason Ferrando, CEO of easyMoney, said: “It’s been a rocky few years for the housing market, as fewer consumers were able to buy homes due to the rising cost of finance.
“The commercial property markets have been more robust in the face of these challenges, as those with deeper pockets were able to shoulder the burden of higher costs.
“The good news is we’re set for a busier market in the years ahead, as early Bank of England data suggests that more consumers and businesses are taking advantage of the cheaper mortgage finance available this year.”
