Investors in the UK are taking on larger debts as confidence returns to the market, according to the latest edition of Laxfield Capital’s CRE Debt Barometer.

Investors in the UK are taking on larger debts as confidence returns to the market, according to the latest edition of Laxfield Capital’s CRE Debt Barometer.

The half-yearly study shows that half of all loan requests in the last two quarters were for an LTV of 65% or higher, compared to one-third of requests six months ago.

Laxfield Capital highlighted a growing divide between conservative investors such as institutional investors, REITS and family offices, and returns-driven investors who are driving the demand for high-leverage debt. Despite the concentrated demand for higher LTV debt, the overall weighted average of LTV ratios has remained steady at 56%.

Volumes were in line with the average of the last three years, with requests totalling £11.3bn (€15.4 bn) over the reporting period. This represented a period of consolidation following bumper Q3 volumes in 2014.

Small-ticket loan requests for less than £20m accounted for 31.1% of the total amount, a relatively high figure, while requests secured on hotels rose from 6.2% to 17.5% and student housing increased from 5.1% to 8.0%.

Emma Huepfl, head of capital management, said: ‘Demand for finance from real estate investors in the UK is increasingly-two tier. Institutional and private investors continue to have a highly restrictive approach to debt finance, contrasting with a growing group of investors seeking leverage to execute a short-term strategy focusing on higher returns.

‘This is not surprising given that funding costs have dropped significantly, with lower interest rates and margins boosting returns. Furthermore, the economic outlook and low interest rates have produced more interest in longer-duration finance, which UK investors have been slow to respond to previously.’

The report was sponsored by the Property Finance Forum and references requests for funding received since January 2013, drawing on a total sample of 624 loan requests totalling £58.8 bn.

Laxfield Capital is a commercial mortgage origination, investment management and advisory business currently managing £1.3 bn of commercial mortgage assets on behalf of global institutional investors.