Some 81% of lenders would like to increase their loan book in the UK in 2017, with an additional 14% hoping to maintain existing levels, international advisor Savills has said at its 29th annual Financing Property presentation.
According to Savills, with the spread between the 'all in' cost of money and UK all property equivalent yield, UK property is currently 'hugely attractive and financeable'.
Prime in pole position
'Whilst the strong desire to lend is generating increased competition in the market, we are in a hugely multi-faceted environment where lenders are compartmentalised into niche groups focussing on different areas,' commented Ian Malden, head of valuation at Savills. 'However, with the prime sector at the top of the agenda for the majority, the balance of power sits firmly with the borrower for this type of product.'
Figures from a survey by De Montfort University, sponsored by Savills, show that lending origination levels in 2016 were down by 17%. Of this origination, only 39% was targeted at new acquisition lending with refinancing increasing to 61%.
UK banks and building societies increased their market share from 34% to 47% in 2016, most likely due to refinancing activity. Insurance companies and North American banks, who are primarily focused on the prime market and portfolios, saw a decrease in market share, while German banks maintained their position.
'In the current landscape of lower investment volumes following the EU Referendum, a lack of prime product and a lower return environment, diversifying and specialising has never been more poignant for lenders,' said Nick Hume, director at Savills. 'Lenders can either remain with a low risk strategy and compete in a wider market or re-evaluate and selectively go up the risk curve.'
Opportunities arising
From diversifying by sector to looking to regional cities or reducing the size of the target loan, Savills suggested that there were still multiple opportunities for lenders looking to grow their business. The advisor also recommended that lenders consider good secondary products, extend their focus to emerging players in the market and look further at refinancing.
'Prime will always hold its attractions but investors who are prepared to move up the risk curve may find opportunities in UK regional offices where rents are rising and growth is less volatile than in London, or in alternative assets, such as pubs, which provide secure income,' noted Mat Oakley, head of UK and European commercial research at Savills.
In terms of residential, Savills said that the London market has cooled in response to Government tax policy, but noted there is increasing pressure to boost housing supply particularly in the professionally managed sectors of the market.
'Although there are approximately 48,000 Build-to-Rent units in the pipeline there is huge growth potential for investors given the stable long-term returns on offer,' added Lucian Cook, head of UK Savill's residential research division.
