Inflation at 3.5%, Approvals at a Three-Year Low: Buy Commercial While Everyone Else Waits

The Bank Meets on Thursday. A Rise Is Now a Real Possibility.

Bank Rate has stayed at 3.75% all year. In September the Monetary Policy Committee voted 6-3 to hold, with Huw Pill, Catherine Mann and Megan Greene voting to go to 4%. That is the same split as July.

Since then the data has moved against the holders. September inflation came in at 3.5%, above forecasts, and the trade press is now describing a rise as likely. The Committee meets again on 5 November. If one more member joins the three dissenters, Bank Rate goes to 4%.

Markets are not waiting. The 5-year SONIA swap closed at 4.75% on 29 October, within touching distance of its 52-week high of 4.81%. A year ago it was around 3.6%. Lenders price fixed mortgages off swaps, so borrowers have been paying the higher rate for weeks, whatever the Bank decides.

CPI Jumps to 3.5%. Fuel Is Doing the Damage.

The ONS reported on 21 October that CPI inflation rose to 3.5% in the 12 months to September, up from 3.1% in August. Prices rose 0.4% in the month alone, against almost no change a year earlier. Motor fuel is the main driver, and the conflict in the Middle East is the reason.

August's 3.1% was already the second rise in a row. Now it is three. The Bank's September forecast had inflation at around 3.75% in the final quarter of this year and just above 4% in early 2027. September's figure means the path is running ahead of where anyone hoped.

The Bank has said the thing that would force its hand is second-round effects: firms and workers building higher prices into pay and contracts. The longer fuel stays expensive, the more likely that becomes. The next CPI release is on 18 November, after Thursday's decision.

Buyers Are Walking Away. Landlords Are Running Out of Margin.

Bank of England figures published on 29 October show 53,443 mortgage approvals for house purchase in September, down from around 54,900 in August and the lowest monthly figure since December 2023. Remortgaging went the other way, jumping from 34,000 to 42,600 as borrowers rushed to refix. The effective rate on newly drawn mortgages rose from 4.60% to 4.63%.

Now look at the landlord's side. Rightmove's Q3 tracker puts the two-year buy-to-let fix at 75% LTV at 5.34%, up from 4.16% before the conflict began. Average advertised rent outside London has passed £1,400 a month for the first time, but that is only 2.4% up on a year ago. Rents are rising more slowly than inflation.

Run the numbers. A £200,000 flat let at a 5% gross yield makes £10,000 a year in rent. Borrow 75% (£150,000) interest-only at 5.34% and the interest costs £8,010. That leaves £1,990 to cover agent fees, repairs, insurance, voids and compliance, before tax. One boiler and the year is gone.

Rightmove also notes that many landlords face remortgaging off cheap fixes onto much higher rates, and that some may sell rather than refinance. Available rental homes are down 2% on last year. Regional yields can look better on paper, from 8.3% in the North East to 6.1% in London, but a high yield on a weak flat still has to carry a 5%-plus mortgage.

Commercial Property Is Under Pressure Too. That Is Your Buying Window.

The RICS UK Commercial Property Monitor for Q3, published on 28 October, makes grim reading for anyone who needs to sell. The credit conditions indicator fell to -37 from -23 in the previous quarter. The investment sentiment index dropped to -13, and most respondents now describe the market as being in a downturn. Overseas investor demand has been negative across offices, retail and industrial for a fifth straight quarter.

Surveyors expect capital values to fall further. The three-month capital value expectation slid to -15 from -11, with industrial turning negative and retail the weakest of the three main sectors. Secondary office and retail rents are expected to fall. Only London showed positive occupier demand.

For a seller, that is a problem. For a buyer with a plan, it is the setup you want. Debt is expensive, lenders are tightening and institutions are on the sidelines. Secondary offices and tired shop units are being priced off income, to buyers who are paying more for their money. That keeps prices soft.

A residential conversion is valued differently. You buy the building at a commercial value that is falling, then value the finished scheme on what the flats are worth. The weaker the commercial pricing, the wider the gap. That gap is where the profit comes from, and it is wider this month than it was last month.

Supply Is Short, Planning Is Slow, and Class MA Runs to a Clock

The latest MHCLG estimate we reported last month put net additional homes in England at 437,900 since July 2024. That is 29% of the 1.5 million target with 44% of the parliament gone. At the current pace the government misses by more than 500,000 homes. Mortgage approvals at a three-year low do not help, because developers are building into a weaker buyer market.

The full planning route remains slow. A Class MA prior approval has a 56-day determination period, and if the council does not decide in time the approval can be deemed granted. When every month of holding costs is priced at close to 6%, that fixed clock has real value.

Check the risk first. Maidstone Borough Council made a non-immediate Article 4 Direction in September covering seven town-centre office buildings, removing Class MA rights. Representations closed on 30 October. Non-immediate directions normally give a 12-month notice period before they take effect, so the clock is now running on those buildings. Other councils are watching. Before you commit to a building, check whether the council has an Article 4 Direction in force or in consultation.

The conditions everyone is complaining about are the conditions that create the buying opportunity. Expensive debt keeps commercial prices soft and keeps big money away. When rates turn, both of those change. The investors who do the groundwork now will be the ones holding consented schemes when the market recovers.