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Loans to UK commercial property investors becoming scarce

The total value of new loans fell to £24.6 billion in the first half of 2008, less than one third of the total loans issued in 2007, the De Monfort University's Commercial Property Lending Review shows.

Regarded as a key study of UK commercial mortgage markets, it also showed a sharp contraction in the number of active lenders.

Just over a quarter of the 58 banks surveyed completed no loan originations in the first half of 2008, while 12 banks undertook 74% of all lending in the period.

The report also showed that appetite to lend to commercial property buyers had weakened yet again by mid-year 2008 as the value of loans in breach of financial covenants hit 3.3% of the total aggregated loan book, more than treble the proportion reported at the end of 2007.

The outlook for 2009 looks no better. Some 38% of organisations said they intended to increase loan originations compared with 55% who expressed their intention to do so at the end of 2007.

The value of commercial property loans in breach of their agreed terms more than trebled with 43% reported having put loans into administration during the first half of 2008, compared with 33% of banks who were forced to do so during the whole of 2007.

With more than £76 billion of debt needing to be refinanced before the end of 2010 and increasing numbers of loans slipping into default, the report warns that commercial property could be a timebomb for banks that supported the real estate boom.

While the survey reveals that the banking industry has almost closed for new real estate business, it is the number of property investors slipping into breach and default of loans that will cause most worry.

Bankers expect defaults to rise rapidly next year as the recession bites into retailers and office occupiers after early casualties such as Woolworths and MFI. There is also an increase in the number of agreed lending facilities being withdrawn.

 

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