Commercial property lending is on the up in the UK. Last year over £53 billion of loans were taken out which was 20% more than during the previous year.
A recent report of the commercial property lending market by De Montford University, has seen the first increase in the value of outstanding loans since 2008.
Perhaps more revealing is how the report indicates there is now a 50% reduction in loan amounts that are ‘distressed’ – in breach, or in arrears – than there were a year ago and that this was half of what it was 2009 – the height of the economic crisis.
Dominating the loan market are the UK banks and building societies which held 34% of all new loans at the end of last year although this is expected to drop to 30% by the end of this year.
Their share has fallen dramatically (it was 70% in 2008) as alternative lenders including angel investors, private equity firms and financial brokering services offer increasingly attractive, inclusive and competitive financial packages in the market gap created by the economic downturn of 2009.
Many property owners prefer to borrow from alternative lenders and chief amongst the reasons is the belief that they are quicker, have more market knowledge and offer more lending certainty. Even though costs are often higher than the banks, they are certainly more accessible.
The gap has also enabled insurers and private equity groups to join the property funding market offering longer-term products and funding platforms such as mezzanine finance.
Key to the buoyancy of the market is the stabilising of LTV ratios which indicate a more balanced market outlook which means “lenders are viewing their risk in a more strategic way” said Peter Cosmetatos, chief executive of the Commercial Real Estate Finance Council for Europe.
However according to the FT the amount of property bought in the UK during the same period actually fell and this has been attributed to the impact of the Brexit vote. It has lead many property experts to surmise that Brexit had undermined the confidence in the UK property market.
Which all goes to show that despite positive figures in both the amount of property lending in the UK and the stabilising of LTV rates, anxieties over Brexit and continued rumours of mismanaged property hedge funds still have the ability to cast gloomy shadows over the recovery of the UK’s property markets.
But the outlook looks positive as Matt Oakley, head of UK commercial research at Savills, states: “Some sectors of the investment market may be softening, implying that it may now have peaked. However, the conditions of 2016 are very different to those of 2007: we’re not overbuilding, nor are we pricing secondary assets as prime, and investors and lenders alike have a heightened awareness of the risks in the market. With continued strong leasing activity across all the main sectors, we’re going to see a gentle drift back to income rather than capital growth, which bodes well for the future of the market.”
