Confidence boosts LTVs in UK property lending: Laxfield

Improving confidence in the UK commercial property market has led to an increase in average loan-to-value ratios, which stand at 58% for the last two quarters, a new report has found.

A debt barometer produced by Laxfield Capital also shows that activity is spreading broadly through the market, especially in the retail sector. Laxfield is a specialist UK commercial mortgage investment manager.

The firm's latest UK Commercial Real Estate Debt Barometer looks at a total sample of £37 bn (€46 bn) of loan requests across 392 deals.The Barometer aggregates financing requests for commercial mortgages received each quarter, and provides an early indicator of change in borrower sentiment, patterns of investment and future lending activity. It is a complementary study to the latest De Montfort University Commercial Property Lending Report.

'The Barometer paints a picture of a recovering commercial property market where confidence is improving. LTV ratios are creeping up but remain well below pre-2008 levels, and the increase in smaller ticket loan requests highlights increasing activity in the regions and a broadening of investor interest beyond prime, core assets. In particular, a growing number of loan requests related to retail assets suggests an improvement in this sector,' said Emma Huepfl, co-founder and head of capital management at Laxfield.

Laxfield’s study highlights a continued gradual increase in average loan-to-value ratios, which stand at 58% for the last two quarters, compared to 51.8% in the first three quarters of 2013. The market is still showing a fairly constrained approach to leverage overall, but an increasing number of investors seek LTVs in excess of 65%

There are also more smaller-ticket loan requests, principally as a result of increasing activity in the regions. Just over 47% of requests received in Q4 2013 and Q1 2014 were for sub-£50 mln loans.

A higher proportion of requests are for acquisition-related loans, as opposed to debt refinancings. This reflects an active investment market that is moving on from legacy debt issues. By loan count, more than two thirds of new requests were acquisition related in Q4 2013 and Q1 2014, Laxfield said.

There is also substantial increase in demand for debt secured on retail assets, which accounted for 31.6% by loan size in the last two quarters compared to 22% in the first three quarters of 2013, the barometer suggests.

Laxfield Capital’s UK CRE Debt Barometer can be downloaded from the Laxfield Capital website at www.laxfieldcapital.com or by clicking here.