10 Years on From the Global Financial Crisis, UK Commercial Property Debt Market is in Good Shape?>
The most comprehensive study of the UK’s commercial property lending market shows that a substantial amount of new lending was agreed during the second half of 2017.
According to the Cass UK Commercial Real Estate Lending Report, there was a higher than usual amount of £34.5bn of undrawn funding, which has been agreed during 2017 and is largely linked with development funding.
Non-bank lenders were the most active group. They increased their market share of new origination to 14% from 10% a year earlier. This is mainly due to the expanding universe of non-bank lenders joining the survey or launching new debt funds. In total, they wrote £6bn of new loans of which 60% was sourced from insurance and pension funds.
Key takeaways –
- Increase in agreed development finance (13% y-o-y) and undrawn loan commitments (29.7% y-o-y)
- Alternative lenders (insurance companies and other non-bank lenders provided nearly a quarter of new lending in 2017 (24%)
Development lending has reached a new peak with £22bn of loan books in development finance, of which £8.7bn was new funding. The majority is allocated to residential development finance.
Average LTV ratios remain low and 78% of the total outstanding loan book is held in loans with LTV ratios below 60%.
Tim Crossley-Smith, National Head of Valuation Consultancy, GVA added:
“10 years on from the Global Financial Crisis, the UK commercial property debt market looks to be in good shape with 78% of loan exposure held in loans with an LTV ratio of less than 60%, and loans in default continuing to reduce. With 73% of all outstanding debt due to be repaid in the next five years, interest rate rises and structural changes to some sectors could pose a threat, but the survey highlights the increasingly diverse range of funding sources.”
The Cass UK Commercial Real Estate Lending Report (December 2017) is available on the Cass website.