According to academics at De Montfort University, outstanding commercial property debt is on course to fall to its lowest since 2005, declining by 1% in the first half of 2015 to £163.7bn. However, there are strong levels of new loan origination in 2015 that will see the total amount outstanding might increase for the first time since the recession.
De Montfort’s half-year edition Commercial Property Lending Report, said that the continuous decline in total real estate debt since 2008 “appears to have almost halted and may subsequently be reversed by year-end.”
The report shows that the value of new loan originations in the first half of 2015 was £24.7bn, which was the highest half year value reported since 2007 £49.2bn. Other evidence to support commercial market health was the falling of distressed loans value, from £23.2bn at year end 2014 to £15.7bm at mid-year 2015.
The number of loans with a loan to value (LTV) ratio of less than 70% has continued to expand in the first half of 2015, which represents 80.5% of £135.5bn of outstanding debt of the traditional lenders and allocated to investment projects. Outstanding debt with LTV of between 71% and 100% fell from 14.3% of the £20bn total at year end 2014 to 12% at mid-year 2015 equating to £16bn.
Margins of interest rate for senior debt continued on its three-year long decline, however it has moderated considerably. The average margin for senior loans secured by prime office property recorded at 214bps, which is down from 218.7bps that was recorded at year-end 2014.
Director of policy (finance) at the British Property Federation, Ion Fletcher, commented: “We seem to have reached a turning point in the amount of commercial property debt in the market, with the impact of post-crisis deleveraging almost totally cancelled out by new lending.
“While this suggests things are ‘hotting up’, a stabilising of senior debt margins and broadly level LTV Ratios indicates lenders remain risk-conscious.”
He continues: “We are also encouraged to see increased lending to speculative commercial property development projects. These are crucial if we want SMEs to have room to grow their businesses.”
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