Where are the worst places to borrow property finance in Europe?
London and the UK are some of the worst places to borrow property finance in Europe due to higher regulation, high costs of debt and lower LTVs, according to analysis from CBRE.
Conversely, according to the agent’s first debt map, London is one of the best places for lenders, due to the stability of returns and high demand, though low yields mean it is often difficult to source deals.
The map measures 20 markets across Europe, looking at the key variables of property finance: loan to value ratios, the margins on debt, all-in cost of debt and property yields.
Marco Rampin, head of debt and structured finance for Europe at CBRE, said post-financial crisis there has been more scrutiny and attention on risk raking, with regulators subsequently increasing the burden on borrowers and increasing the cost of capital.
“All banks abide by rules that have been agreed in Basel… the UK has gone a step further by imposing the slotting system,” he said.
“From a bank standpoint, the metrics are finding the right balance between profitability and cost of capital.”
Based purely on pricing, CBRE said lenders would be wise to consider less core markets for more attractive returns, although this does not account for other qualities including scale, liquidity and regulatory conditions that need to be considered.
Amenable borrowing locations were spread across Europe with Berlin, Madrid and Amsterdam in Western Europe, Helsinki and Stockholm in the Nordics and Bratislava, Prague and Budapest in Eastern Europe proving the best conditions to raise funds.
Slovakia and Belgium have a near 4% spread between the cost of debt and the average property yield, while the gap between cost of debt and property yield is smallest in Poland and Italy.
Meanwhile, Ireland and the UK score highly in terms of debt yield over property yield, meaning there is more surplus for downside protection for lenders.
Rampin said: “If you buy a property that has very low yields due to market pressure, you cannot just simply assume the debt will be cheaper to counterbalance that. The analysis of risk on behalf of lenders, especially the banks, will always be the same.
“Given that the cost of debt will remain the same, if a property yield is lower, you have less space and buffer as a lender, and this drives the LTV to a little bit lower.
“If you go higher you absorb the majority of the rent available, which is a seen a risk, because it only takes a few glitches in the market and then you might be in breach.”
To send feedback, e-mail alex.peace@egi.co.uk or tweet @egalexpeace or @estatesgazette
London and the UK are some of the worst places to borrow property finance in Europe due to higher regulation, high costs of debt and lower LTVs, according to analysis from CBRE.
Conversely, according to the agent’s first debt map, London is one of the best places for lenders, due to the stability of returns and high demand, though low yields mean it is often difficult to source deals.
The map measures 20 markets across Europe, looking at the key variables of property finance: loan to value ratios, the margins on debt, all-in cost of debt and property yields.
Marco Rampin, head of debt and structured finance for Europe at CBRE, said post-financial crisis there has been more scrutiny and attention on risk raking, with regulators subsequently increasing the burden on borrowers and increasing the cost of capital.
“All banks abide by rules that have been agreed in Basel… the UK has gone a step further by imposing the slotting system,” he said.
“From a bank standpoint, the metrics are finding the right balance between profitability and cost of capital.”
Based purely on pricing, CBRE said lenders would be wise to consider less core markets for more attractive returns, although this does not account for other qualities including scale, liquidity and regulatory conditions that need to be considered.
Amenable borrowing locations were spread across Europe with Berlin, Madrid and Amsterdam in Western Europe, Helsinki and Stockholm in the Nordics and Bratislava, Prague and Budapest in Eastern Europe proving the best conditions to raise funds.
Slovakia and Belgium have a near 4% spread between the cost of debt and the average property yield, while the gap between cost of debt and property yield is smallest in Poland and Italy.
Meanwhile, Ireland and the UK score highly in terms of debt yield over property yield, meaning there is more surplus for downside protection for lenders.
Rampin said: “If you buy a property that has very low yields due to market pressure, you cannot just simply assume the debt will be cheaper to counterbalance that. The analysis of risk on behalf of lenders, especially the banks, will always be the same.
“Given that the cost of debt will remain the same, if a property yield is lower, you have less space and buffer as a lender, and this drives the LTV to a little bit lower.
“If you go higher you absorb the majority of the rent available, which is a seen a risk, because it only takes a few glitches in the market and then you might be in breach.”
To send feedback, e-mail alex.peace@egi.co.uk or tweet @egalexpeace or @estatesgazette
