Commercial property investors in the UK should take note of the results of a survey conducted by De Montfort University in Leicester, who are predicting that they may be unable to refinance up to £100 billion of loans in the wake of the ongoing European debt crisis. The results of the survey, which gathered responses from 63 lenders last December, revealed that a number of UK commercial property owners simply do not have sufficient collateral to refinance their maturing loans under current lending terms.
Banks and other creditors which were the usual source of funds for commercial real estate purchases have cut lending by 6.8 percent to £212.3 billion in 2011. The institutions chose this move to shore up their balance sheets and recapitalise in response to stricter banking regulations. With banks expected to scale back or even stop commercial property lending entirely over the next three to five years, insurers and funds are entering the market to offer financing to owners.
Banks which are still in the commercial property lending game are tightening up the rules under which they are prepared to advance funds. None of the banks which participated in the 2011 survey were willing to lend against a development project unless a buyer was committed to the property or a tenant had signed a lease for the space.
The banks which responded to the De Montfort University survey also revealed that approximately 20 per cent of the loans they had extended exceeded the value of the commercial property which was being used to back them. A total of 72 per cent of bank loans, or £153 billion are set to mature by the end of 2016, according to the results of the survey. A further £48.3 billion of the bank loans were either in default or been violated under the terms of the loan agreement.
