The estimated total value of outstanding debt secured against commercial property was £285 billion as of the middle of 2012. This figure takes into account loans secured by Ireland’s NAMA bank according to De Montfort University’s UK Commercial Property Lending Market Report.
The report, the largest of its kind, takes a comprehensive look at the country’s lending market and concludes that the “slow unwinding of commercial property debt is continuing.” Researchers reached this conclusion after surveying 74 lending teams from 65 banks and other lenders.
The results indicate that debt with a loan-to-value ratio (LTV) of over 70 per cent dropped by £12 billion in the first six months of 2012 as banks took action to rebalance their loan books. This figure currently stands at £94 billion.
Nevertheless the report expresses concerns that the prolonged financial crisis, together with loans that were written at the peak of the property boom in 2007 that are due to reach maturity, could to a situation where approximately £48 billion may be declared in breach of covenant or in default.
According to the survey, £11.3 billion in new loans were issued during the first six months of the year. Most of these involved refinancing existing loans. Of the amount advanced for new loans, only five per cent was provided for commercial development. Fifteen per cent of the money was lent for residential development.
Over time, the banks’ loan books are slowly coming back into balance. Lenders are reducing the value of outstanding high LTV legacy debt to put themselves in a much stronger position in 2013.
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