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No loans for speculative office projects

Not a single bank or lender that took part in the UK’s largest commercial lending survey would be prepared to lend against speculative development, it has been revealed.

The UK Commercial Property Lending Market report by De Montfort University, says progress has been made on commercial sector legacy debt, which dropped 6.8 per cent last year, from £228.1bn to £212.3bn. New lenders to the market also increased their market share to 8 per cent.

But the report says between £72.5bn and £100bn will struggle to be refinanced on current market terms when the debt matures as it has an LTV of over 70 per cent.

The survey also shows a continuing draining away of development finance, and reported that, for the first time, not one of the banks or lending organisations surveyed would be prepared to lend against a speculative office development.

The survey of 72 lending teams from 63 banks and other financial groups found that 2011 started with a degree of optimism for the commercial property lending market.

But this changed dramatically during the second half of the year as the crisis surrounding the Eurozone and the sovereign debt of member states brought “extremely tough times” to the economy.

Banks still face a significant overhang of pre-recession property debt held on their balance sheets, it says, with approximately £51bn due to mature during 2012 and a total of £153bn - 72 per cent of outstanding debt - by year-end 2016.

Respondents also expressed concerns about how the Financial Services Authority (FSA) planned to implement ‘slotting’, which would introduce additional regulatory capital requirements to real estate lending, suggesting the consequences of the changes would be to reduce the volume and increase the cost of business.

Bill Maxted, author of the report, said: “The debt crisis is regarded as a real threat to asset values in the UK, and globally, and is a problem that has to be solved before national economies and lending markets can start to improve.”

Liz Peace, chief executive of the British Property Federation, said: “Lenders continue to chip away at this legacy of property debt but the economic situation - in the UK and overseas - means they do so with one hand tied behind their backs.

“These figures underline how important it is for the government to use all of the tools at its disposal to encourage new debt buyers into the market, and to urgently find new ways to encourage new investment and to spur economic growth.”