Guide
UK Commercial Real Estate Financing Guide
A practitioner's guide to navigating the UK lending landscape - from clearing banks and insurance companies to challenger banks and international debt funds.
Overview
The UK lending landscape.
The UK commercial real estate debt market is the largest in Europe and one of the deepest globally, with outstanding CRE debt exceeding GBP 170 billion. The market is characterized by a diverse ecosystem of capital providers - from the dominant clearing banks to a growing cohort of alternative lenders that have reshaped the landscape since the Global Financial Crisis.
Several structural factors distinguish the UK market from its US counterpart. UK lenders tend to be more conservative on leverage, with typical senior loan-to-value ratios of 50% to 65% compared to 60% to 75% in the US. The benchmark reference rate is SONIA (Sterling Overnight Index Average), which replaced LIBOR at the end of 2021. Loan terms are generally shorter - three to seven years for investment loans, compared to the five- to ten-year terms common in the US - and the UK market places greater emphasis on relationship banking and recourse lending than the largely non-recourse US institutional market.
For cross-border investors, understanding these differences is critical to structuring competitive financing. The UK market offers significant depth of capital, particularly for prime assets in London and major regional cities, but navigating the lender universe requires local expertise and established relationships.
Capital Sources
Key UK lenders.
The UK CRE debt market features a layered universe of capital providers, each with distinct appetites, capabilities, and pricing structures.
Clearing Banks
NatWest, Barclays, Lloyds, HSBC
The UK's four major clearing banks remain the dominant force in commercial real estate lending, collectively holding the largest share of outstanding CRE debt. These institutions favour established borrowers with proven track records and strong banking relationships. Clearing banks typically offer the most competitive pricing in the market, but their underwriting criteria are conservative -expect rigorous stress testing of cash flows, detailed covenant packages, and a preference for prime or near-prime assets in established locations. Relationship banking is central to their model; borrowers who maintain broader banking relationships beyond the real estate loan will often find more flexibility in structuring and terms.
Challenger Banks
OakNorth, Shawbrook, Hampshire Trust, Recognise Bank
The UK challenger banking sector has grown significantly over the past decade, filling a gap in the market for borrowers who need more speed, flexibility, or higher leverage than clearing banks can provide. These institutions tend to be more entrepreneurial in their approach, with shorter decision-making chains and a willingness to consider transitional assets, secondary locations, and less conventional deal structures. While pricing is higher than clearing banks, challenger banks often compensate with faster turnaround times, more accommodating prepayment terms, and a willingness to lend on properties that require active asset management or repositioning.
Insurance Companies
Aviva Investors, Legal & General, M&G, AXA
Insurance companies and pension funds are among the most important long-term lenders in the UK CRE market. Their investment approach is driven by liability matching -they seek long-dated, fixed-rate assets that align with their long-term insurance and pension obligations. This makes them ideal lenders for stabilized, core assets with long, secure lease profiles. Insurance company loans typically feature terms of 10 to 25 years with fixed rates benchmarked against UK gilts. They are best suited for institutional-quality assets let to strong covenant tenants on long unexpired lease terms. The trade-off for borrowers is a longer origination process and less flexibility on prepayment.
International Banks & Debt Funds
Deutsche Pfandbriefbank, Aareal Bank, Cheyne Capital, ICG
International banks -particularly German Pfandbrief banks and North American lenders -have been active participants in the UK CRE debt market for decades, bringing additional depth of capital and competition. Debt funds have emerged as increasingly significant players, particularly for larger, more complex transactions that require whole loan execution, higher leverage, or structured finance solutions. These capital sources are particularly relevant for institutional-scale transactions exceeding the balance sheet appetite of domestic lenders, cross-border deals involving multi-jurisdictional assets, and situations where borrowers need the certainty of a single lending relationship through the full capital stack.
Considerations
UK-specific considerations.
Financing commercial property in the UK involves navigating a distinct legal, tax, and regulatory framework that differs materially from the US market.
Stamp Duty Land Tax (SDLT)
SDLT is a transactional tax levied on commercial property purchases in England and Northern Ireland (Scotland has Land and Buildings Transaction Tax, Wales has Land Transaction Tax). The current commercial rates are 0% on the first GBP 150,000, 2% on the portion from GBP 150,001 to GBP 250,000, and 5% on amounts above GBP 250,000. SDLT applies to both asset purchases and share purchases where the target company holds UK land. Structuring transactions as share deals can sometimes mitigate SDLT exposure, though this must be weighed against other tax and commercial considerations. Lenders factor SDLT into their transaction cost analysis and total capital requirement calculations.
Business Rates
Business rates are a property tax levied on commercial premises based on their rateable value, which is assessed by the Valuation Office Agency. The current multiplier is approximately 50p in the pound for standard properties. Business rates represent a significant occupational cost and can materially affect a property's net income -particularly for vacant properties where the landlord assumes the liability. Lenders scrutinize business rate exposure carefully, especially for assets with vacancy risk. Relief schemes exist for small businesses, empty properties (for limited periods), and properties undergoing certain types of renovation.
Planning Permission
The UK planning system is governed by local planning authorities under the framework of the National Planning Policy Framework (NPPF). Securing planning consent for new development or material change of use can be a protracted process, often taking 8 to 16 weeks for standard applications and significantly longer for major developments requiring environmental impact assessments or section 106 agreements. Lenders view planning risk as one of the most significant variables in development finance -most will require full, unconditional planning consent before committing to a construction facility. Borrowers should factor planning timelines and costs, including professional fees and potential community infrastructure levies, into their project budgets.
Leasehold vs Freehold
The distinction between leasehold and freehold tenure is more pronounced in the UK than in many other markets. Freehold ownership grants absolute title to the land and buildings in perpetuity. Leasehold ownership grants rights for a defined period -typically 99 to 999 years for commercial property. Lenders pay close attention to unexpired lease terms; most require a minimum of 60 to 75 years remaining on the headlease beyond the loan term. Leasehold properties may also be subject to ground rent obligations and restrictions on alterations or subletting that can affect both value and the borrower's ability to execute their business plan.
Rent Review Structures
UK commercial leases traditionally feature upward-only rent review clauses -a structure that is relatively unique to the UK market. Under an upward-only review, the rent can increase to market levels at each review date (typically every five years) but can never decrease below the passing rent, even if market rents have fallen. This provides landlords and their lenders with a floor on income. Increasingly, institutional leases are moving toward RPI or CPI-linked reviews, which provide inflation protection with greater predictability. Lenders favor long unexpired lease terms with contractual rent growth mechanisms, as these provide greater income certainty and support higher valuations.
Deal Structures
Typical deal structures.
UK CRE transactions are financed through a variety of structures, each suited to different asset profiles and borrower objectives.
Senior Debt
50 – 65% LTV
The foundation of UK CRE financing, senior debt from clearing banks, international banks, and insurance companies provides the lowest-cost capital in the stack. UK senior lending has been notably more conservative than US markets since the Global Financial Crisis, with most lenders holding maximum LTVs well below 70%. Pricing is typically quoted as a margin over SONIA (Sterling Overnight Index Average), which replaced LIBOR as the UK benchmark rate in 2021.
Stretch Senior
65 – 75% LTV
Stretch senior facilities allow a single lender to provide higher leverage than traditional senior debt, eliminating the need for a separate mezzanine lender. These structures have become increasingly popular as debt funds and alternative lenders have grown their UK market presence. The lender assumes risk across the full capital stack but charges a blended rate that reflects the incremental leverage. Borrowers benefit from a simpler capital structure with a single lending relationship.
Whole Loans
65 – 80% LTV
Whole loan structures combine senior and mezzanine risk into a single facility provided by one lender, typically a debt fund or specialist finance provider. The lender may subsequently syndicate or securitize portions of the loan. Whole loans offer borrowers streamlined documentation, a single point of contact, and often faster execution than bifurcated senior/mezzanine structures. They are particularly well-suited for transitional assets and value-add strategies where flexibility is paramount.
Mezzanine Finance
70 – 85% LTV (combined)
Mezzanine debt in the UK market is typically structured as a separate facility ranking behind the senior loan, often with an intercreditor agreement governing the relationship between senior and mezzanine lenders. UK mezzanine is provided by specialist debt funds, private credit platforms, and family offices. Pricing reflects the subordinated risk position and typically ranges from 8% to 15% per annum. The UK market for institutional mezzanine has deepened considerably in recent years, providing borrowers with more options for higher-leverage execution.
Development Finance
55 – 65% LTC / 65 – 70% GDV
UK development finance is structured around loan-to-cost (LTC) and loan-to-gross development value (GDV) parameters. Lenders typically advance 55% to 65% of total development costs and cap leverage at 65% to 70% of the projected completed value. Development facilities are drawn down in tranches as construction progresses, with independent monitoring surveyors verifying milestone completion before each drawdown. The UK market offers both traditional bank development facilities and increasingly competitive alternatives from specialist development lenders and debt funds.
London Office
Contact our London team.
Our London-based advisors bring deep expertise in UK CRE finance, established lender relationships across the market, and the cross-border perspective of a truly transatlantic platform.