Why commercial mortgage refinancing rarely stacks up for UK businesses

The assumption that falling interest rates automatically trigger a wave of commercial mortgage refinancing does not hold up in practice, according to Keith Humphreys (pictured top), managing director of Pinpoint Finance.

In his experience, the arithmetic of switching rarely favours the borrower, and the conversations brokers are having with clients reflect that reality.

"Commercial mortgage refinance is low for us," Humphreys told Mortgage Introducer. "The sums don't really work if they are chasing a rate saving. For a refinance to be worth doing, it generally needs to be a property with little or no debt against it, because the cost to switch can make the whole deal not worthwhile."

The friction is structural. Arrangement fees, valuation costs, and two sets of legal fees combine to erode any modest rate saving before the borrower has seen a penny of benefit. "Once you've added arrangement fees, valuation, two sets of legals, a modest rate saving disappears quickly," Humphreys said. "I've talked more clients out of refinancing than into it."

When refinancing does make sense

There is a version of commercial refinancing that does work, but it is driven by capital need rather than rate ambition. Where a borrower holds an unencumbered or lightly geared property, releasing equity to fund a next acquisition is a business decision with a clear return. The fees are the same, but the client is receiving something tangible in exchange.

"Where we do see refinance activity, it's almost always capital raising rather than rate chasing," Humphreys said. "Somebody with an unencumbered or lightly geared property releasing equity to fund their next purchase. That's a business decision, not a rate decision, and the numbers stack up differently because the client is getting something for the fees rather than just swapping lenders."

It is a distinction that matters for brokers advising commercial clients across the UK mortgage market. The question is not whether a rate saving exists on paper, it is whether the total cost of executing the switch leaves the borrower genuinely better off.

The broker's role in commercial deals

Beyond refinancing, Humphreys is direct about the value a broker brings to a commercial mortgage transaction, and it has less to do with exclusive rates than with market knowledge and process management.

Business owners approaching commercial lenders directly face two immediate disadvantages. They do not know whether that lender will lend at all, what their criteria is, or whether a better option exists elsewhere. And in many cases, they may not be able to approach certain lenders directly at all.

"Going direct is difficult for two reasons," Humphreys said. "First, you don't really know whether that lender will lend at all, their criteria, or whether they're the best option even if they say yes. Second, you won't normally be aware of the other lenders operating in that space unless you follow the market closely, and most business owners have better things to do."

The broker's practical value is in routing the case correctly from the outset. A commercial mortgage application submitted to the wrong lender costs time, creates unnecessary credit footprint risk, and delays a transaction that a business owner needs to complete. Brokers working across commercial and residential lending understand that first-time placement is not just efficient, it is often the difference between a deal completing and collapsing.

"That's the real value, in my opinion," Humphreys said. "Not a secret rate, but knowing the shape of the market and steering the case to the right lender the first time rather than the third."

What the next 12 months look like

On the outlook, Humphreys is measured but constructive. Activity is up, challenger bank competition has increased, and new client enquiries are running ahead of where they were 12 months ago. The single biggest variable remains the base rate, and what the Bank of England does next will determine how much of that momentum is sustained.

Fixed rates in the commercial market do not move like residential products. They are governed by the swap market and lender cost of funds, and material repricing downwards requires a genuine shift in that underlying market, not just a base rate nudge. Brokers covering commercial finance for UK business owners should be setting that expectation with clients clearly.

Geopolitical instability adds a further layer of uncertainty. Unresolved tensions affecting energy prices feed directly into inflation expectations, which in turn affect lender funding lines and commercial pricing.

"While the situation with Iran remains unresolved, energy prices and inflation expectations stay unsettled, and that feeds straight into the lenders cost of funds or funding lines," Humphreys said. "Some stability there would do more for commercial pricing than anything else."

Even so, his overall read on the market is positive. "My instinct is that the next 12 months will be better than the last 12," he said. "Activity is up, competition among the challengers is up, and there's more appetite from new clients in the market than there was this time last year."