Pressure on interest cover ratios and debt yields from a correction in property markets could see lenders offering lower leverage to borrowers when they refinance in the coming years.
According to Savills 30th annual Financing Property presentation today, 73% of all outstanding debt is due for repayment in the next five years, with loan maturities set to peak in 2020.
It says this could cause borrowers to seek alternative sources of finance if values soften in the interim, as with the current low yields it could be challenging to replicate existing levels of leverage.
This, Savills says, could provide opportunity for alternative lenders with traditional lenders unwilling to break TV ratios.
Ian Malden, head of valuation at Savills, said: “Compared to a decade ago, on the whole the lending industry appears to be in a good place. Regulation, prudence and a healthy market have generated low LTVs and high ICRs and a diversified lending market has reduced the prospects of ‘contagion’.”
According to CASS, new origination levels were broadly stable in 2017 at £44.5bn, with 51% of total origination refinancing and 49% new acquisitions, indicating that lenders are replacing their maturing loans with new lending but not expanding significantly.
Savills said the next three years will offer opportunities for alternative lenders and will further hasten the move of property debt from traditional banks to the alternative sector, where its research identified approximately 100 lenders.
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