FINANCE: There was a significant rise in new lending in the first six months of 2014, according to the latest De Montfort report.
The report, which surveyed 85 lending teams from banks, building societies, insurance companies and other non-traditional lenders and was released on Friday, saw new lending soar in the first half of the year to £19.6bn. That figure compares with £29.9bn for the whole of 2013 and has been aided by an increase in lending from non-bank lenders.
UK banks and building societies represented 36% of new origination at mid-year 2014, compared with 43% at year-end 2013.
For the first time, a non-bank lender entered the top 12 active lenders to sit alongside five UK banks and building societies, two German banks, two North American banks, an international bank and an insurance company.
Despite the increase, authors of the report, Bill Maxted and Trudi Porter, said that the increase in activity was not “debt fuelled to the same extent as occurred before the financial crisis and is initially, therefore, most probably equity driven”.
While new lending is on the rise, the volume of outstanding debt held against UK commercial property continues to fall, dropping by 5.1% from £180.3bn at the end of 2013 to £171bn at 30 June 2014. The decline was driven by customers paying down debt and loans being sold.
The half-year results also showed that at the mid-year point some two-thirds of outstanding debt had a loan-to-value ratio of 70% or less, compared with 63% at year-end 2013. Outstanding debt with a loan-to-value ratio of between 71% and 100% fell to 16%, compared with 18% at year-end 2013 (see graphs).
The decline in interest rate margins that began in the middle of 2012 continued during 2013 and to a lesser extent during the first six months of 2014. The average margin for loans secured by prime offices was 226.5bps – a decline of 26.4bps from year-end 2013. For loans secured by secondary offices, average interest rate margins declined slightly more steeply by 28.8bps to 275.7bps.
While the lending environment has shown obvious improvement, there are inconsistencies across the country. Some 80% of organisations active in the market would lend on prime investment projects in London, compared with just 46% in Northern Ireland.
There was also a strong preference for lending against investment assets rather than developments, with only a quarter prepared to lend to speculative development projects. This is a marked increase on six months previous, however, when just 12% of lenders would provide debt for spec development.
Outgoing British Property Federation chief executive Liz Peace said: “The outlook for debt finance to support the commercial property market is very positive. The steady reduction of outstanding debt, and of loans with dangerously high loan-to-value ratios, is very encouraging. Although new lending is growing at a significant rate, the fact that the market seems to be mainly equity-driven means that we are unlikely to be living through another 2007.”
She added: “We are concerned, however, about the potential implications of the lack of debt finance available for speculative development. While lender caution in this area is totally understandable, given events in the past few years, there are parts of the country where new, high-quality business space is urgently needed.”
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