There are signs that the collapse in UK commercial property values is coming to an end, according to a leading banker. Ben Broadbent, who sits on the Bank of England’s Monetary Policy Committee, believes that the UK market is better placed than most to bounce back as the financial crisis eases.
This is because, unlike before the recessions of the 1980s and 1990s, the UK did not experience a huge construction boom prior to the current difficulties which began in 2007. He describes the situation as a “boomless bust” that will allow the market to rapidly recover as there is not the oversupply that has existed in previous years.
UK construction output is 18 per cent below that of the last cyclical peak and even this has been largely sustained by the public sector. Private sector demand continues to lag behind and, at one stage of the recession, was nearly 30 per cent below its previous high.
What generated property values before the recession, Mr Broadbent argues, was not a boom in construction but the wide availability of credit. Around 90 per cent of non-financial lending in the UK is secured on residential or commercial property. This led to the ratio of commercial loans to GDP almost doubling at its pre-recession peak.
What is continuing to depress the market, Mr Broadbent says, is not oversupply but the current unavailability of credit. When the banks loosen the purse strings then an improvement in the market will follow he believes.
Do you think the improved economic news and the fall in unemployment announced over the past month will lead to increased lending or will the banks remain cautious for the time being? Share your thoughts with us below.
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