Insurers' muscle helps drive up UK property lending

Insurance companies account for a third of big-ticket real estate lenders in the UK, where the volume of new property loans is expected to climb from an estimated £35 bn (EUR 43 bn) in 2012 to £50 bn by 2016, according to property adviser Savills.

The firm, which presented the findings of its 24th annual financing research entitled 'Who's in charge - borrowers, lenders or politicians?' on Tuesday, said that projected volumes for 2012 onwards would mark a significant increase on the 2011 figure of £27.5 bn.

However, the property finance world is currently going through a 'huge structural change' in terms of who will be issuing new property loans, Savills said. The changes have been accelerated by regulatory issues facing traditional lenders, which have opened up opportunities for non-bank lenders.

According to Savills, of those lenders that indicated they are able to lend and hold in the £100 mln and above bracket, over one third are insurance companies and all but one have entered this segment since 2008.

One of the reasons why insurance companies are so active in the market is that they are not regulated by Basel III or slotting, the FSA’s impending risk weighting model. Savills said slotting, which affects UK banks, will have a substantial impact on banks with half of all property lending last year, as well as two thirds of total existing loan books, having been written by UK lenders.

William Newsom, Savills UK head of valuation, commented: 'Implications facing the UK lending market such as slotting are likely to be the catalyst for the biggest structural change in property lending over the last 20 years. The issue of banks having to raise more capital to support existing loan books is affecting their lending ability. However, slotting is likely to increase the sale of loan books, which will have a positive impact on the property market. It will also accelerate the resolution of legacy issues in the banks.'

Savills predicts the number of loan book sales will double from £4 bn in 2011 to in excess of £8 bn in 2012 and the firm expects this figure may increase in 2013/14 as the cost of unwinding swaps burns off.

The lenders with the ability to issue and hold loans over £100 mln are:

Barclays Bank (UK)
Met Life* (US)
HSBC (UK)
M&G Investments* (UK)
Lloyds Banking Group (UK)
Deka Bank (Germany)
RBS (UK)
Deutsche Bank (Germany)
AIG* (US)
Deutsche Pfandbriefbank (Germany)
Aviva (UK)
Helaba (Germany)
AXA* (France)
Bank of China* (Hong Kong)
Legal & General* (UK)
Citigroup (US)

*new lenders since 2008