The government’s proposed ban on upward-only rent hikes on commercial property could have ramifications for lender appetite for commercial mortgages, brokers have said.
In an amendment to the English Devolution and Community Empowerment Bill, the government is proposing a ban on upward-only rent hikes on commercial property in a bid to support small businesses with costs.
The bill is currently at the committee stage in the House of Lords, so it has three stages to go through before it becomes law.
Specialists said the moves could not only have ramifications for tenants and landlords but also impact lender appetite, making them more cautious and leading to a lowering of loan sizes and heightened stress testing.
Morgan Steward, director at GPS Financial, said: “I believe it will affect the commercial lending market if it goes through. It won’t necessarily kill the market off, but it will make lenders more selective; they could tighten their underwriting. The tenant, prospective client, and type of lease could come under harsher scrutiny.
“Rents could fall or stagnate while interest rates rise in line with rates, repairs, insurance, and compliance costs. The cash flow buffer could disappear.”
Aldermore Insights with Jon Cooper: Edition 5 – Feeling enthusiastic about next year’s run-of-the-mill market
Sponsored by Aldermore
He said that if the amendment came to pass, we could expect lenders to stress test rent “more aggressively”, cap assumed rental growth at zero and apply “harsher underwriting criteria”.
“The domino effect would continue, and these factors could directly contribute to loan sizes being reduced, which means we could see lower maximum loan-to-value (LTV) ratios, greater reliance on future rental assumptions, and lenders being more selective on industry sectors. This will not hit all commercial assets equally,” Steward said.
He noted that the least affected commercial assets would be prime logistics, strong covenant national tenants and long unbroken leases with index-linked rent reviews.
The most affected commercial sectors would be secondary retail, small multi-let commercial and assets heavily reliant on rent growth to “make the numbers work”.
“This will not collapse commercial mortgage lending. It will make it more selective, more expensive, and less forgiving. Whether Parliament likes it or not, that is the reality,” he noted.
Hiten Ganatra, managing director of Visionary Finance, said a proposed ban “would have a direct impact on the commercial finance market”, as “rental certainty is central to how commercial properties are valued and funded”.
“If lenders can no longer rely on predictable income growth, we are likely to see more cautious valuations, tighter lending criteria and, in some cases, higher borrowing costs – particularly for secondary assets or borrowers refinancing existing loans.
“While the policy aims to support small businesses, there is a risk of unintended consequences. Landlords may respond with higher starting rents, shorter leases or alternative rent mechanisms, which could reduce long-term security for occupiers; the impact on small businesses would be felt in a different way.
“My view would be to simply allow for market forces to dictate the rent and the government should step away,” he noted.
Proposed ban will make ‘commercial mortgages more difficult’
Holly Andrews, director and loans manager at KisFinance, said that from a tenant perspective, “lower and more predictable rents could encourage small businesses and entrepreneurs, who have previously been priced out, to take on commercial premises or expand into additional space”.
“In the short term, this could therefore increase demand for rental properties and support business growth. Having said that, from landlord and investor perspectives, the inability to rely on upward-only rent reviews reduces long-term income certainty. This is likely to discourage investment in commercial property, particularly for investors who rely on predictable rental growth, to justify borrowing and returns.
“Over time, reduced investment could lead to a contraction in supply, leading to shortages of suitable commercial premises. With rising demand and falling supply, landlords may respond by setting higher initial rents to compensate for the lack of future rental uplifts. This could offset some of the intended benefit for tenants and may still leave affordability challenges for new or smaller businesses – in particular, in the early days of the business when cash flow is often at its tightest,” she noted.
Andrews said a shortage of rental stock and higher starting rents “could push more businesses toward purchasing their own premises, rather than renting”.
“While ownership may be attractive in the long term, it can place significant pressure on cash flow, especially for start-ups, mostly due to higher upfront capital requirement with purchasing deposits, and associated higher costs and expenses. This may prevent some potential businesses from entering the market altogether,” she said.
Andrews agreed that for lenders, reduced rental income could lead to more cautious underwriting, lower LTV criteria and a greater emphasis on borrower strength, business performance, and alternative income metrics.
There could also be a reduced appetite for investor-led commercial lending, particularly where rental income is the primary repayment source, but owner-occupier lending may “remain more resilient”. However, lenders may still price in additional risk where future rental flexibility is restricted, she noted.
“Therefore, I see that it will make obtaining commercial mortgages more difficult,” Andrews said.
For advisers, she said it will increase the importance of stress-testing affordability under more conservative income assumptions, exploring ownership versus leasing at an earlier stage, advising clients on longer-term cash flow implications and managing expectations around lending terms, pricing, and deposit requirements.
“While the policy aims to support small businesses, it may unintentionally tighten lending criteria and increase the complexity of advice, particularly for landlords and start-up businesses seeking finance,” she added.
Jason Berry, group sales director at Crystal Specialist Finance, noted that while the intention to ease cost pressures on small businesses is “understandable”, a ban on upward-only rent reviews “risks creating uncertainty in the commercial property market”.
“For lenders and investors, predictable rental income underpins funding decisions, so we may see landlords responding by adjusting lease structures, increasing headline rents at the outset, or becoming more cautious about tenant security. The challenge will be ensuring the policy supports occupiers without inadvertently restricting access to finance or investment in commercial property,” he said.
