Industry leaders urge UK government to introduce debt REITs

Real estate industry leaders in the UK are calling on the government to introduce mortgage REITs as a way of making the property debt market more liquid and freeing up banks to lend. The calls come ahead of the presentation of the 2012 UK budget on Wednesday.

Phil Nicklin, real estate tax partner at Deloitte and an adviser to the government on REITs since they were introduced in 2007, believes there is a good chance that a consultation document could be published in the UK budget on the introduction of mortgage REITs. ‘Mortgage REITs are well developed in the US,’ said Nicklin. ‘If introduced to the UK, they could take on existing bank loans, freeing up lending capacity and potentially providing a new source of capital to the mortgage market.’

In the US there are 27 mortgage REITs, with a combined market value of around $30 bn (EUR 22.7 bn).

Robert Fourt, partner and head of investment research at property consultancy Gerald Eve said: ‘Given the debt mountain that still persists in the UK and is coming to a peak in the next few years, the introduction of mortgage REITs would be a very welcome friend to the property sector in the UK. Having a liquid property debt market is crucial, particularly in respect of property development financing, and mortgage REITs could play a significant role in enabling that, by freeing up capital, through managing out distressed debt in a more effective way.’

REIT specialist Robert Moir, corporate partner at Pinsent Masons added: ‘The market has also been calling for debt REITs to unlock underlying property assets via the banking sector. A consultation would be very welcome in the industry, both by investors and banks. As well as the benefits for the property sector, this would help bank balance sheets and free up funds for more lending to SMEs, a key political priority at the moment.’