EG Summit: Borrowing costs for UK real estate will continue to rise, Lynda Shillaw, managing director of corporate real estate, wholesale banking & markets at Lloyds Banking Group, has warned.
Speaking at the fifth Estates Gazette Investment Summit this morning, Shillaw said the lending market in the UK was in a state of flux with the entry of new lenders such as institutions and private equity players.
“We’ve still not got a fully functioning lending market and pricing won’t settle down until all the new entrants are in place”, she said.
Another challenge for the market is that new, non-bank sources of debt coming into the UK real estate market are reluctant to lend outside London. Demand from institutional investors, both foreign and domestic, for a small pool of prime assets is bunching up in the capital, and exacerbating the gap between London and the regions. Those lenders which do look outside the M25 are likely to be hit by a high cost of capital, according to the panel.
“If I were an economic adviser for the UK government, I’d be extremely worried about the fact that much of the secondary and tertiary property market just can’t get financing,” said Max Sinclair, head of the UK division of Hypothekenbank Frankfurt AG (formerly known as Eurohypo).
International insurers and pension funds are increasingly looking to get involved in UK property, and as many as two or three US institutions are planning to enter the market in the near future, according to Paul Wilson, regional director, Europe, of MetLife Real Estate Investments.
And while institutions may have deeper pockets than cash-strapped banks, the terms they are prepared to lend on are more conservative. “A lot of the debt that comes out of the US is long-term, full margin and much less flexible than products that have been offered before, so borrowers have to think carefully about whether these new sources of capital really are a good fit for them” added Sinclair.
