Source : Business Times - 25 Dec 2008
The total value of new loans secured by UK commercial property buyers shrunk to £24.6 billion (S$52.68 billion) in the first half of 2008 - less than one third of the total loans issued in 2007, research last Wednesday showed.
De Montfort University’s Commercial Property Lending Review, broadly seen as a key study of UK commercial mortgage markets, showed a sharp contraction in the number of active lenders as the second year of the credit crunch unfolds.
The report, which covers a £226.7 billion total UK property (commercial and social housing) loan book, showed that just over a quarter of the 58 banks surveyed completed no loan originations in the first half of 2008, while 12 banks undertook 74 per cent of all lending in the period.
The report also showed that appetite to lend to commercial property buyers had weakened yet again by mid-2008 as the value of loans in breach of financial covenants hit 3.3 per cent of the total aggregated loan book, more than treble the proportion reported at the end of 2007.
Some 38 per cent of organisations said that they intended to increase loan originations compared with 55 per cent who expressed their intention to do so at the end of 2007.
The average loan book allocation for commercial property fell to 9.5 per cent at June 2008, a 1.5 percentage point fall on year-end 2007 figure.
This figure could fall even further as the recession amplifies a commercial property correction and a squeeze on inter- bank lending persists, the report suggested.
‘A weakening economy resulting in the failure of an increasing number of business tenants, further declines in capital values . . . will make it far more difficult for lending organisations to maintain or refinance existing loan portfolios,’ the report said.
‘It is expected that liquidity will remain scarce and may have even been further eroded by the events in the banking industry subsequent to mid-year 2008,’ the report added.
Forty-three per cent of organisations reported having put loans into administration in the first half of 2008, compared with 33 per cent of banks which were forced to do so during the whole of 2007.
During the first six months of 2008, interest rate margins for loans to all property types spiked by an average 27.7 basis points versus year-end 2007.
Maximum loan-to-value ratios also fell over the period, highlighting stronger bank demands for bigger sums of equity in leveraged property deals.
The average typical maximum loan-to-value ratio applied to loans secured by prime office property was 72 per cent as at the end of June 2008 compared with 75.6 per cent at year-end 2007.
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