Brokers report softening commercial borrowing appetite

Economic uncertainty and concerns around inflation have been blamed by commercial mortgage brokers for a cooling in appetite for external funding from clients, a survey from Atom Bank has revealed.

The latest SME Pulse survey, covering Q2 2025, revealed a 7% drop in the proportion of respondents who had seen an increase in appetite from their commercial clients. However, this still accounts for nearly half of brokers (46%). While there has been a slight uptick in the proportion of brokers reporting a fall in demand (5%), the biggest increase was in the number of brokers who saw no change (49%, up from 44%).

The majority of respondents who noted a slow down in lending (75%) cited economic uncertainty as the main reason for the drop in demand.

However, brokers also raised growing concerns about UK inflation levels. The Office for National Statistics reported higher than expected inflation figures for the year to June, with the Consumer Price Index rate rising to 3.6%, the highest level since January 2024.

Half of the brokers polled were themselves concerned about continued higher inflation, while more than a third (35%) said it was reducing confidence among their commercial clients in undertaking new purchases or refinancing existing ones.

Property purchases remain the most common purpose for borrowing among SMEs. It was pinpointed by almost two-thirds (64%) of respondents as being the main driver, ahead of growth and business expansion (16%) and refinancing existing debt (14%).

Improving access
 
The survey also revealed that access to funding is continuing to get easier for brokers and their business clients.

Just a fifth (20%) of brokers reported finding it difficult to secure funding for SME clients, the lowest proportion since the SME Pulse was launched in 2023. Brokers noted the wide range of lenders active in the commercial space as a factor in this improved access.

Brokers were also asked to what extent their business clients were concerned about the prospect of tariffs with the US. Around a quarter (24%) reported concern among their clients, though almost half (46%) said their clients were completely unfazed by the situation.

Nearly half (45%) of respondents said their clients were talking at least occasionally with brokers about the opportunities or challenges presented by recent trade deals with the likes of the EU, US and India.

The rise of PBSA

Purpose Built Student Accommodation (PBSA) is an increasingly attractive area of the market for property investors seeking higher yields and portfolio diversification, and this is translating into greater activity for some commercial brokers.

More than a quarter (28%) of brokers reported seeing increased demand from property investors for funding in order to support expansion in the PBSA sector. A similar number (22%) suggested that PBSA now accounts for between 10% and 20% of their business.

Tom Renwick, head of business lending at Atom Bank, commented: “The current economic climate, marked by persistent uncertainty, understandably is contributing to a perceived softening of demand among brokers. However, it's crucial to highlight a key finding: a minimal number of brokers have reported an actual decline in demand. This distinction underscores the inherent robustness of the market. Despite challenges such as elevated inflation and potential tariffs, a significant number of businesses remain confident in their ability to pursue ambitious growth strategies.

“It’s also particularly encouraging to see access to funding improving. This is the strongest position brokers have reported since we launched the Pulse survey and shows that lenders are striking a better balance in delivering criteria which truly meets the needs of a broader number of SMEs. Nonetheless, that one in five brokers are still having issues shows there is a clear imperative to further open up funding avenues for quality SMEs, especially considering that certain sectors face persistent challenges in raising capital.”