Savills calls on lenders to look beyond LTV

Property lenders should 'look beyond loan to value (LTV) covenants when dealing with borrowers and focus on cashflow and debt service in order to 'take advantage of the fruits of recovery', Savills has urged at the launch of its annual financing property presentations.

Savills said that at end-December 2007 over £200bn of commercial debt was outstanding in the UK market and just under 40% of loan books are due to mature over 2008/09/10. Previously, research by De Montfort University suggested the rate was 32% at end-December 2006. Savills suggested the increase is a result of bridging finance and short term loans. These matured loans, combined with loans that may be in technical breach of LTV covenant, have caused concern in the market.

However, Savills stressed that the strength of the macro economic climate including a low base rate environment, better researched markets and the limited scope for national job losses, not to mention the fact that property as an asset has improved in quality and benefited from significant rental increases, are all positive indicators for the return to a stable market.

William Newsom, Savills UK head of valuation, said: 'Lenders who are faced with potential distress should focus less on LTV covenants and concentrate on the actual properties and their locations - thus identifying cashflows with growth. We are in a period of downturn, however it is wise to take a five year view and not be too hasty.'

Savills said that there are 53 lenders with an appetite to lend to new customers, and 16 new lenders have entered the market over the last 12 months. Lenders with lending capacity are attracted to higher margins, lower LTVs and better lending terms. Newsom continued: 'Lenders today are able to lend on terms that 12 months ago they could only have dreamt of.'

Savills 20th series of Financing Property presentations take place in London, Manchester, Edinburgh and Dublin.