Banks ease credit availability to UK developers

Banks have become more willing to lend to commercial developers in the UK, according to De Montfort University’s latest Commercial Property Lending Report.

The study revealed growing confidence among both lenders and borrowers, a greater availability of finance, and increased diversification among lending institutions, with the role played by ‘non-bank’ lenders such as insurance companies and debt funds becoming more pronounced.

In 2013, the total value of outstanding debt in the UK came to £198.4 bn (€245 bn), down from a high of more than £270 bn in 2008, the report found.

New lending in 2013 totalled £29.9 bn, up from £25.5 bn in 2012. Some 60% of organisations polled intend to increase the size of their loan books, compared with 46% last year.

Lending terms are also improving. The average loan-to-value (LTV) ratios of new loans crept up from 64.2% to 65.9% in 2013, and for the first time in several years, lenders indicated they would be willing to lend against speculative commercial development.

Liz Peace, chief executive of the British Property Federation, said: 'There has been a general feeling of improving credit availability in the past 12 months and this year’s report bears that out. Recovery post-crash has been slow but steady, and it is promising to see that the market is now moving in the right direction.

'The banks seem to have significantly patched up their balance sheets and problem loans are being resolved, freeing up capital for new lending. We are also delighted to see that non-bank lenders are becoming a significant part of the market, suggesting we are moving towards a more balanced provision of real estate debt in the UK.'

Chris Holmes, head of UK Debt at JLL Corporate Finance, noted that margin pricing has on average declined significantly in the past years. 'Early indicators demonstrate that this continues albeit at a slower rate in Q1 2014 for the most prime assets. Borrowers now have the genuine choice of lending partners at every part of the risk-reward spectrum and across all asset classes.'

The report was compiled by DMU’s Bill Maxted of the Faculty of Business and Law and is considered to be the most influential and in-depth study of the commercial property lending market in the UK.