The results of a survey conducted by De Montfort University indicate that UK commercial property investors may be facing a £92 billion funding gap.
About half of the £198 billion in bank loans may be “unrefinanceable on terms available in today’s lending market,” it says.
The report, released on May 17, collected information from 78 lenders, and found that the amount owing is too high compared with the property backing them.
In 2012, banks and other lenders in the UK cut commercial property lending by an estimated 7.7 per cent, according to De Monfort. This move was taken to strengthen balance sheets and meet capital rules.
Bill Maxted, who wrote the report with Trudi Porter, pointed out that the country’s economy over the past 12 months was having a detrimental impact on borrowers’ cash flows. He also pointed out that the situation with many existing problem loans “was deteriorating.”
According to Investment Property Databank (IPD) lenders may be put in a position to further write down the value of their loan books to reflect current prices. About half of commercial property debt was loaned in 2007 and 2008, around the time that prices hit their peak, which would suggest that the value of the outstanding loans is being overstated, according to De Montfort’s data.
IPD stated, “This continues to raise questions over the values at which banks are holding underlying asset values.”
Approximately £45.5 billion is due for repayment this year and more than 70 per cent of all outstanding commercial real estate debt is scheduled for repayment over the next five years, according to the results of the survey.
The survey results also indicate that lenders remain reluctant to finance developments without a tenant already in place, according to Maxted and Porter.
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