Defaults among commercial property lenders in the UK hit record-high levels in 2013. And rising values, coupled with improving economic conditions, encouraged banks to get tough on delinquent borrowers.
The number of loans in default increased by 13 per cent to £24.5 billion as lenders became more willing to call in loans over late payments, according to data from a De Montfort University survey of 76 lenders. The value of other loans in breach of contract went down 21 per cent to £15.8 billion.
The amount of write-offs on commercial real estate loans was three times higher than those for home mortgages since the 2008 collapse of Lehman Brothers. Banks have cut outstanding debt and increased provisions against future losses. Now, they are getting “problem properties” off their balance sheets as they issue new loans.
Lenders reduced their commercial real estate books by £38.1 billion last year. Sixteen percent of the reduction was due to write-offs, an increase from 6 per cent one year earlier. The loan books were down and new lending increased by 17 per cent to £29.9 billion.
The turnaround in property values has attracted an average of one new lender to the UK market per week during the past two years as the larger banks retreated, according to Savills Plc.
Over half of the new lenders (63 per cent) are not banks. Most of them are insurers and private equity firms. Two hundred institutions are competing for £40 billion of planned borrowing.
