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There was a significant rise in new lending to the UK commercial sector in the first half of 2014 but the recovery has been uneven across the country. Overall outstanding debt held against UK commercial property fell to £171 billion in the six months from £180.3 billion at the end of 2013 as lenders continued to reduce their loan books following the 2009 financial crisis, according to a report from academics at De Montfort University. The report, the most comprehensive analysis of the UK’s commercial property lending market, also found a significant drop in the volume of old loans that were distressed or in breach of financial covenants. However, it noted that organisations much more willing to lend against assets in London than elsewhere, and also more inclined to lend against investment properties rather than new development. New lending accelerated during the period with £19.6 billion of new lending, the highest total recorded by the study since 2008, compared with £13.4 billion in the first half of 2013 and £29.9 billion for the whole of 2013. However, the report points out that the increase in activity generally in the commercial property market was not debt fuelled to the same extent as occurred before the financial crisis when, for example, some £49.2 billion of loan originations were completed in the first half of 2007. It is initially, therefore, most probably equity driven, it explains. The report also found the lending market becoming more diverse, with UK Banks and Building Societies representing 36% of new origination at the mid year point compared with 43% of new lending in 2013, and a share of 54% of the existing stock of outstanding loans. It also outlined significant differences in lending activity and appetite remain across the country. For example, 80% of organisations active in the market reported that they would lend on prime investment projects in London, compared to 46% who would do so in Northern Ireland. While lenders’ appetite for development risk is also improving, it remains a preserve for the specialist, particularly where the project is speculative: 26% of lenders were prepared to provide senior debt to finance such projects at the mid point of 2014, compared to 12% at the middle of 2013. Liz Peace, chief executive of the British Property Federation, said that the outlook for debt finance to support the commercial property market is very positive. ‘The steady reduction of outstanding debt, and of loans with dangerously high loan to value ratios, is very encouraging,’ she explained. ‘Although new lending is growing at a significant rate, the fact that the market seems to be mainly equity driven means that we are unlikely to be living through another 2007. However, we are concerned about the potential implications of the lack of debt finance available for speculative development,’ she pointed out. ‘While lender caution in this area is totally understandable given events in the past few years, there are parts of the country where new, high-quality… Continue reading →

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