FINANCE: A flood of new entrants intending to lend to the UK property market has created a significant market imbalance with lending ambitions exceeding market opportunities by some £35bn.
At Savills’ 26th annual financing property presentation today, the firm identified more than 200 organisations with ambitions to lend to the UK real estate market – the highest figure since records began 20 years ago.
The property adviser’s senior director, William Newsom, has identified 52 new entrants to the lending market over the past 12 months, giving rise to the unprecedented number of lenders.
This is on top of 52 identified at the same time last year.
Of the 104 new lenders named by the firm in the past two years, 63% fall into the “other lenders” category, Savills found, signalling a substantial presence from non-banks.
According to the agent, this has created a significant imbalance between market opportunities for lending, which currently stand at £40bn, compared with lender ambitions of £75bn.
The increased competition to lend has driven interest rate margins down substantially and LTV ratios up slightly. The spread of lending ambitions has also widened in terms of geography, risk and sector.
However, Savills noted that increased investment into the alternative markets has opened up new opportunities for lenders. It highlighted three areas: specialists property types such as student accommodation; properties requiring an understanding of the fundamentals such as development finance ; and general categories such as small-ticket lending, new customers and bridging finance.
Newsom said the pool of opportunities is not equivalent to lending aspirations, which will impact the market.
He said: “We have already seen the lending landscape change with the pick-up in demand resulting in a reclassification of the property finance market.
“What previously was prime, secondary and tertiary is now core [highly competitive and includes prime, good secondary and ‘rising stars’], non-core [which is less competitive and includes the more specialist and alternative property types noted above] and ‘terminal decline’.”
“Obviously, the lending margins will reflect the increased risk from what was previously prime but we are certainly not seeing any signs of reckless lending with loan to values remaining vastly lower than since these records began.”
bridget.oconnell@estatesgazette.com
