Research recently conducted by De Montfort University in Leicester has revealed some astonishing statistics regarding commercial property loans.
With banks doing everything in their power to protect themselves, it is the lenders who are suffering the most.
According to the study, approximately £28.5 billion worth of commercial property loans (equivalent of a ¼ of all commercial loans in the UK) are worth more than the original commercial property investment. The study also found that 41 per cent to 56 per cent of loans for commercial property cannot be refinanced.
Speaking of the findings, Bill Maxted from the British Property Federation (BPF), stated: “Lending organisations commented that the existing liquidity crisis had been made more acute by the problems of European sovereign debt and the unknown extent of contagion between banks.”
“Respondents have suggested that only an increase in confidence in the UK economy, demonstrated by a number of quarters of sustained growth in UK GDP, would signal a recovery in the commercial property market in the UK,” Mr Maxted added.
But should banks be tightening their credit conditions, or will this just make the situation even worse? According to the study, many banks are worried about the lasting effects of the eurozone crisis, combined with the lack of UK economic growth, and as such, they have become much stricter about lending money.
Speaking of the suggestions, Liz Peace, Chief Executive of the BPF, put across: “These figures underline how critically important it is for government to use all of the tools at its disposal to help tackle this overhanging property debt. This means encouraging new debt buyers in to the market – something that we think reform of the real estate investment trust regime to allow the creation of mortgage reits would help to achieve.”
“It also means finding ways to encourage new investment and spur economic growth. One easy way would be to stop charging full business rates on empty commercial properties, something that is a considerable disincentive for landlords who wish to invest in premises for small and medium firms,” Ms Peace added.
So, if the Government does take on the advice from the BPF and starts to offer concessions to landlords who own empty commercial properties, would this help the commercial property market improve, and encourage more investors to enter the market?
