New lending activity in the UK commercial property market has dropped by 24% indicating a significant decline in the number of property purchases that require debt, according to the 2017 Mid-Year De Montfort Commercial Property Lending Report.
According to the study, new loan origination has decreased from £23 bn, in the second half of 2016, to £17.6 bn in the first half of 2017. When comparing the figure with the first half of 2016, in which £21.4 bn of new loan originations were completed, this represents a year-on-year decline of 18%.
'The overall impression is one of caution among lenders, but the market remains competitive and there are no signs of panic,' commented Ion Fletcher, director of Finance Policy, British Property Federation.
Insurance companies and North American banks retrenched particularly sharply from new loan origination, while other non-bank lenders were the only lender group to buck the trend, increasing their new loan origination volume by 9% from year-end 2016. Their share of all new origination grew from 10 to 16%.
Despite the decline in new lending, the total value of committed debt at mid-year 2017 remained stable at £191.4 bn, including both drawn and undrawn amounts, and total drawn debt increased by 0.8% from year-end 2016 to £166 bn.
The report also shows that market liquidity remains strong, with particularly competitive pricing and lending terms for prime property, with some margins below 200 bps for loans at 60% loan to value (LTV). German and North American banks, which are subject to different lending rules than UK banks, continue to offer the most competitive pricing. The overall average LTV for deals in the first half of 2017 was stable at around 58% across property types.
After years of limited lending to commercial development, the first half of 2017 saw the share of new debt allocated to such projects more than double from five to 11%.
While just over half of all lenders report concerns about property market fundamentals – and many expect values to fall over the next 12-18 months – 78% of them are positive about the second half of 2017 and intend to increase new loan origination in that period.
Mario Berti, CEO of specialist lender Octopus Property commented: 'The De Montfort data showing an increasing market share for specialist lenders like ourselves does not come as a surprise, as we have been transacting record volumes of late. This is a trend that we expect to continue because traditional lenders struggle to compete with the new breed of specialist lenders.
'Borrowers increasingly want flexibility, speed and a much more bespoke level of service which specialist lenders understand and respond to. Overall we remain upbeat about the market prospects,” Berti concluded.
