Investor appetite for debt at higher loan-to-value (LTV) ratios has jumped, according to a real estate debt study.
Half of all requests were for loans with LTVs above 65%, Laxfield Capital’s UK CRE Debt Barometer found.
The figure compares with 35% in the company’s last study, released six months ago.
Laxfield, which analysed more than £58.8bn (€79.8bn) of debt requests from UK real estate investors, found that, as the cost of borrowing continues to drop, there is increased interest in long-term funding, following a period of “muted demand”.
Laxfield, which manages real estate debt investments on behalf of institutional lenders, analysed 624 requests for financing from property investors.
It found strong demand for acquisition-related finance and an increase in requests for finance below £20m, although large deals still dominate the market.
Head of capital management Emma Huepfl said: “Demand for finance from real estate investors in the UK is increasingly two tier. Institutional and private investors continue their highly restrictive approach to using debt finance.”
At the same time, more investors with “short-term, high-return strategies” are currently seeking high leverage debt, she added.
“Funding costs have reduced significantly, with lower interest rates and margins proving highly accretive to returns,” she said.
“It does not surprise us to see this stimulating demand for greater leverage. It has also produced more interest in longer-duration financing, which UK investors have been slow to respond to previously.”
As yields tighten significantly in core sectors, debt-backed purchasers have more appetite for operational assets where better yield is available, she added.
“Sponsor capability is clearly a key area for lenders in providing finance secured on these assets,” said.
Laxfield found “substantial” demand for finance secured on alternative assets, with hotels and student housing together forming 25% by volume, and non-core sectors 50%, of the overall pipeline.