UK real estate lending debt climbs to EUR 245 bn

Bank lending to real estate investors in the UK shows no sign of abating, according to figures released by the Bank of England (BoE). The total amount outstanding to real estate increased by £6.4 bn (EUR 9.4 bn) in the first quarter of 2007.

Total outstanding real estate debt increased to £167 bn (about EUR 245 bn), representing 10.9% of overall lending. 'As a proportion of total debt, this is the second-highest level on record, and above the peak of 10.1% in the previous cycle,' property advisor Jones Lang LaSalle noted.

Jeremy Handley, director in valuation advisory at Jones Lang LaSalle, said: 'Although the underlying investment market remains healthy, we continue to monitor the level of lending to real estate, particularly in the current environment, with base rates expected to reach a minimum of 5.75% this year. In it latest financial report, the Bank of England stressed similar concerns, thus we are likely to see lending to real estate coming under wider scrutiny over the coming months.'

He added that it was no longer a question of traditional senior debt transactions. 'The volume and complexity of structured finance deals continues to grow rapidly as borrowers and lenders seek to finance increasingly low-yielding property. Despite the rising cost of borrowing, some financial organisations and investors continue to back transactions at the higher end of the risk curve.'

UK investors are increasingly looking for investment opportunities in foreign markets, Handley said. ‘In 2006, UK investors spent EUR 13.4 billion on real estate across continental Europe. We anticipate foreign denominated lending to continue to grow during the course of the year as investors target the recovering European markets such as Germany.'

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