Concern at lending contraction

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Bank loan books are slowly rebalancing, but loans made during the property boom are “coming home to roost” according to research.

De Montfort University’s report on the UK commercial property lending market says the value of outstanding debt secured by commercial property was £285 billion in the middle of the year.

Researchers are concerned the prolonged financial crisis, coupled with loans written at the peak of the property boom in 2007, which are now reaching maturity, has lead to around £48 billion of loans being in breach of financial covenant or in default.

And, they say that situation will deteriorate if there is a continuing decline in the capital values of the commercial property securing historic loans.

Liz Peace, chief executive of the British Property Federation, said: “The slow unwinding of loan books continues and it’s encouraging that positive action is being taken by lenders to erode the amount of high risk legacy debt.

“Of concern is the ongoing contraction in lending for commercial property development. Of the £11.3bn of new lending in the first half of 2012 only five per cent went to development. While the big boys will be able to access debt from alternative providers, the rest of the market has to compete for an ever decreasing slice of the pie.”