De Montfort survey shows pick-up in UK property lending

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Property lending in the UK is starting to pick up after the credit squeeze, according to a survey from De Montfort University, with more than half of banks, building societies and insurance companies now planning to increase their loan book size.

Interest-rate margins were also creeping lower and loan-to-value ratios (LTVs) rising, the university’s Commercial Property Lending Market report showed.

Debt held against UK commercial property shrank by 2.5% between the end of 2012 and mid-year 2013 to £193bn (€229bn), the data showed.

At the end of June, the future lending intentions of banks, building societies and insurance companies were increasingly positive, the report’s authors said.

Some 52% of lending teams intended to increase their loan-book size, and 57% planned to boost loan originations, compared with 46% and 54%, respectively, at the end of last year.

Organisations classed as ‘other non-bank lenders’ were particularly optimistic, with all of those sampled intending to up both their loan-book size and loan originations during the course of this year.

Meanwhile, interest-rate margins across all sectors accelerated the decline that began between mid-year and year-end 2012.

This had been the first fall seen in the study since the end of 2006, the data showed.

On average, the margin for loans secured by prime office fell to 280.3 basis points in the middle of this year from 323.8bps at the end of 2012.

LTVs increased for loans secured in all prime and secondary commercial property sectors, except in secondary retail property.

The average LTV for loans secured by prime office rose to 65.1% in the first half of the year from 64.2%, while those for the secondary office property market climbed to 60.4% from 58.9%.

Ion Fletcher, director of policy (finance) at the British Property Federation, said the survey’s results showed an improving commercial real estate market and were welcome news for the industry.

“Observers can expect the 2013 full-year survey to be even more bullish, as much of the market positivity we’re currently seeing has developed even further since the summer,” he said.

Despite industry talk about the rise of alternative finance providers, Fletcher said the proportion of commercial real estate debt held by those players had not really moved since the 2012 full-year report had been published.

“While we may well be moving towards a more diversified commercial real estate lending market, the move is very gradual, and nobody should be under any illusions about the speed of change,” he said.

 

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