In a three to one for Specialist Lending Solutions, we interviewed the Manchester SME lending team on the outlook and special characteristics of the region.
What are the characteristics of the lending business LHV Bank does in Manchester, in contrast with London, for example, where the other office is based?
It’s a large and diverse market geographically in the North West, encompassing distinct local areas such as Liverpool, Leeds, and down to Stoke. In Manchester, business connections tend to be long-standing. Based on these long-standing relationships, as long as our terms are competitive, we secure the business most of the time. We’re relationship bankers, whereas in other parts of the UK, business can sometimes flow more naturally to you.
Why did LHV Bank – which only obtained its banking licence in 2023 – open a Manchester office, and what are some of the characteristics of its regional deals?
LHV Bank acquired the loan book and retained the majority of the SME lending team from a Manchester-based start-up bank called Bank North, in which LHV had been a strategic investor. LHV identified an opportunity in the under-served SME market and sought to build on that.
In terms of deals, we’ve assisted clients across multiple sectors. One of the standout early deals was for an Irish bar in Manchester, reputed to serve the best pint of Guinness in the city. Although the hospitality sector can be challenging to finance, we recognised the quality of the management team and the opportunity to expand the business and secure the freehold. It has gone from strength to strength, becoming a vibrant venue with live music and great energy.
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What kinds of deals are you seeing more of?
There has been a gradual increase in investors focusing on build-to-rent developments rather than build-to-sell projects. This model has grown steadily in popularity over the last 10-15 years.
However, challenges in the sector persist, such as regulatory changes and tax treatments, which can offset gains on the demand side. Despite these hurdles, the sector remains robust.
Is there a North/South divide in terms of broker culture?
No, the fundamentals are essentially the same. However, yields are much tighter in London, making serviceability more challenging for a start-up bank like ours. That said, we are fortunate to have the flexibility to tailor loan structures to accommodate lower-yielding assets by offering interest-only periods or incorporating exit fees to reduce holding costs.
This flexibility is extended across the UK on a case-by-case basis.
Will the second rate cut of the year in November to 4.75% significantly impact the commercial and bridging markets?
Very little. It’s not a substantial-enough cut to incentivise developers to achieve the returns they were seeing five or six years ago. The development market remains tough. In theory, reduced rates could lead to higher investment yields and rising property prices, but there will likely be a lag before any such trends emerge. Our investors typically focus on value-added opportunities, so a quarter-point rate change isn’t a deal breaker.
How is the regional outlook for 2025 shaping up?
On property prices, historical trends indicate that property is a finite resource. While some residential construction is taking place, new commercial development is minimal, and good-quality commercial stock is shrinking due to conversions to residential use.
What is being built is often pre-let. With economic growth continuing and limited new supply, values are likely to rise, although every property remains unique.
