Paul Coates, RBS managing director, UK real estate finance, shares his views where we are in the cycle, how lending has changed since the global financial crisis, and what we can expect for the sector next year.
On how lending practices changed 10 years after the global financial crisis….
The lending market is very different from how it was before the crisis. Certainly the level of leverage that is in the market is significantly less. I think there is a much more competitive and diverse set of lenders in the market than there was in the early 2000s. So, it feels to me that the debt market is significantly more sustainable than perhaps it was with the benefit of hindsight.
On what RBS would not lend against in the current market…
Is there anywhere we wouldn’t lend? I don’t think so. Are there areas of the market which are more exposed to the macro risks that are out there? Undoubtedly so. But that is where you see customers are less active. So it is almost self-fulfilling in a way as to where you will find the opportunity and where you will find the risk.
On where we are in the cycle….
There will be a cycle, there will be some kind of turn at some point. The challenge is what will cause it and when will it be, and that’s the billion-dollar question. I think undoubtedly there is huge amounts of capital looking to be deployed in the sector and it’s global. Therefore there are a whole bunch of global factors that could change the appetite of that global capital.
On the impact of an interest rate rise on RBS’ lending….
What the market doesn’t like is shock, so a more gradual change is more likely to be absorbed more gently. We do look at long-term trends in the market. Actually, there’s a relative element of safety still built into – if you look at property prices versus the risk-free rate – they are not at an all-time low. So, you can probably take a little bit. But I go back to those global capital flows, and it isn’t just about the interest rates in this market, it’s what returns can that capital find globally.
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