De Montfort University’s annual study of the UK’s commercial property lending market reveals confidence has returned as new loan originations hit a post-crisis high and value of outstanding loan books saw its first increase since 2008.
Supported by Bilfinger GVA as well as other leading property, financial and legal firms, the De Montfort Commercial Property Lending Report shows that the total amount of outstanding debt at year-end 2015 was £168.4 billion, representing a 1.9% increase from £165.2 billion 2014.
Further evidence that the market has recovered can be seen in the decline of almost 50% in the value of distressed loans (those in default and in breach of financial covenant). At year-end 2015, the value of distressed loans reported to the research was £12.1bn, compared to £23.2bn a year earlier and £47.6bn at the end of 2009.
Mike King, Director of Valuation at Bilfinger GVA Manchester, added: “With new origination at its highest level since the financial crisis, the secured debt market continues its measured response to the easing of capital value growth that we have seen since last autumn and the more uncertain economic outlook.
“With average loan to value ratios standing at lower levels than the end of 2014 and interest cover ratios increasing over the year, lenders are demonstrating a disciplined approach to changing circumstances, whilst the survey reassuringly confirms their long term commitment to the commercial real estate sector.
“The inherent superior value for money often available with prime and good secondary property in the North West in contrast to the Capital is a particular attraction to investors and hence to secured lenders when assessing overall debt risk.”
Ion Fletcher, Director of Policy (Finance) at the British Property Federation, commented: “The fall in value of distressed loans to very low levels coupled with a gradual increase in new loan originations hints at a robust and stable commercial property lending market. It will be interesting to see whether commercial real estate lending accelerates from here or grows in a more measured way.
“Given growing investor interest in the regions over the course of 2015 and the government’s efforts to devolve greater powers to local areas, it is perhaps surprising that lenders show such a strong preference for central London. Lenders also remain reluctant to lend at small ticket sizes, which raises questions about how smaller regional projects can access the finance they need to succeed.”
De Montfort University’s Commercial Property Lending Report is the most comprehensive report into commercial property lending in the UK and has become a benchmark industry report for the sector. The reports are used by the Bank of England within its twice yearly Financial Stability Review and are regularly referred to in the Financial Times and property publications such as the Estates Gazette and Property Week.