Bank of England report sees lending increase of £13.6bn after 2000 surge brought on by investment in all areas of the property sector, and helpful finance rates
Bank lending to the property sector has reached a record high, according to the Bank of England.
Lending increased by £13.6bn for the year ending March 2001, compared with £5.87bn for the same period last year. This recent figure beats the 1989 record of £10.7bn, taking the figure for outstanding loans to property companies to £60.8bn. This represents a £3.6bn increase on the previous quarter.
Rupert Clarke, managing director of Jones Lang LaSalle Corporate Finance, said the rise resulted from a surge in lending from the middle of 2000. This has been driven by record levels of investment activity in many property sectors, coupled with favourable finance rates for the leveraged investors who have underwritten this growth.
There have been fears that this willingness for banks to fund speculative developments could lead to another commercial property crisis, mirroring the early 1990s. Between 1990 and 1995, outstanding bank debt secured on property decreased significantly.
However, according to Clarke, today’s market and financial environment are completely different to those of 1989. Clarke said the most recent data from the JLL and IPD Property Lending survey shows that, although loan-to-value ratios have increased slightly, average loan to value ratios remain below 70%.
Clarke predicted that lending growth will continue and banks will remain positive on the UK property sector, and are keen to continue to expand their property loan books given appropriate opportunities. He said that the interest rate environment also remains favourable for leveraged investors who continue to be able to capitalise on positive yield gaps between property yields and finance rates at a time when institutional investors are holding back.
