It has recently been reported in international business newspaper, the Financial Times, that the UK’s banks are racing to shed themselves of commercial property debts.
The Financial Times declared, ‘the process of reducing the huge book of commercial property loans is under way’. In total there is over £224bn owed to UK banks in commercial property loans, with about half the loans set to mature by 2013 and a fifth still in breach or default following the crash in values.
During 2010 more than two thirds of the UKs banking institutions managed to lower their loan books in regards to commercial property. However, 2011 will see the same banks attempting to reign in there commercial property loans further still.
Unfortunately only half of the loans lowered were actually repaid. The Financial Times writes, ‘Lenders took possession of and sold property worth £500m during the year, and “wrote off” a further £500m….Banks took more than £1.2bn of equity in exchange for debt, and up to £1bn was subsequently sold. Only between £4bn and £5bn of the debt was estimated as repaid, while a significant proportion of debt was also taken in by the National Asset Management Agency.’
The fact that many of the commercial property loans which remain outstanding are maturing is bad news for the balance sheets of the banks. The depressed market in the regions means that, ‘debt is likely to exceed the value of the property in many areas.’
This, of course, could mean further write downs and forced sales in 2011 and looks likely continue into 2012. ‘Between 2011 and 2013, about £105bn of debt held on balance sheets will be due for repayment, with a further £39bn by 2015. In 2011, £45.9bn of debt is due to mature – up from £34.7bn in 2009 owing to extensions of loans previously due for repayment.’
As always the bad news creates a real opportunity for those who have the capital to invest in the regional property market. As during the next couple of years we will see more and more commercial property available at knock down prices.
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