Debt falls on commercial property
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Positive signs are visible amid a shaky economic situation, UK Commercial Property debt dropped to £293billion, according to the British Property Federation.
Secured debt fell by over £7billion, from £300billion to approximately £293billion last year. Most of this is a result of lenders starting to pick up the pieces of over-lending before the recession and viewing their balance sheets in a healthier light.
A study conducted by UK Commercial Property Lending Market – supported by De Montfort University, revealed that 67% of lenders had experienced a decline in the value of their outstanding loan books over the last year, and their debts held on balance sheet saw a fall of 9.4% by the end of year. Those questioned for the survey told that £45.9billion of loans were due to be repaid in 2011, a fall of around £11billion last year.
Author of the report, Bill Maxted was positive about what he called ‘important first stepping stones on the path to recovery.’ Mr Maxted commented that the reduction in outstanding debt ‘avoided off-loading property assets to the detriment of the market and capital values.’
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Liz Peace, chief executive for the British Property Federation, described the debt changes as ‘a glimmer of hope’, but also pointed out that there were still big challenges ahead for the banking sector, she urges the Government to be aware of the fragile recovery and consider how sensitive the industry still is to any more ‘shocks that may be caused by ill-judged interventions from policy makers.’
It’s worth taking note that conditions are still unstable for lenders and creditors, only £19.9billion of new loans were made in 2010, totalling less than half of the debt required to be repaid in 2011. Another problem is that UK lenders were found to be at risk from non-prime property – in comparison to their European counterparts, something Mr Maxted describes as ‘continued weakness’, in relation to the UK economy. The cost of secured loans reached its highest level ever in 2010, and looks set to rise even further in the next twelve months, with average interest rates expected to stay the same or increase even more.
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