Bank lending to property at tightest level since Lehman Brothers collapse

By Bridging Loan Directory -

Lending to the real estate sector remains as tight as seen in the period immediately after the Lehman Brothers collapse, say Jones Lang LaSalle. Lending to real estate has dropped to GBP188 billion; a 22% decrease on levels seen a year ago as shown in the latest Bank of England quarterly lending figures. UK bank exposure to real estate (i.e. the proportion of lending to real estate as % of total lending) remained static at 9% from Q1 2011.

Jeremy Handley, European Director of Valuation Advisory at Jones Lang LaSalle, said:

“That there has been no change in lending to real estate was not unexpected and reflects the stagnant state of the UK market. Real estate workouts are taking longer than in 2010 and earlier this year, and this has very much been a feature of the sector since Q1 2011. We do not expect to see any significant change in debt availability until lenders receive further clarification on the situation in the eurozone. Lending in the secondary/riskier end of the market is unlikely to restart until there is more confidence in both the wider financial markets and also signs of economic stability and growth.”

“We are starting to see banks investigate loan book sales, RBS and Lloyds being two notable examples currently in the market,” adds Barry Osilaja, European Director of Corporate Finance at Jones Lang LaSalle. “However, this has not been widespread and we are yet to see any significant deleveraging come through in the bank lending figures.  Deleveraging should be occurring in the secondary markets but activity in the sub-prime market in Q3 2011 was almost non-existent. We expect to see more movement in the secondary market once confidence starts to return to the market, which should bring about new deleveraging activity. Nevertheless, if the expected increase in loan book sales does occur, this will only have a small effect on the net effective lending figure as capital will be recycled or reset because of capital adequacy ratios.”