New lending in the UK commercial property market slumped by 18% year-on-year in the first half of 2017 and interest rate margins drifted out, according to the latest market survey from De Montfort University.
Loan originations fell to £17.6bn with all groups of lender reducing their lending apart from non-bank lenders (excluding insurance companies), whose market share almost doubled to 16%.
“With fewer commercial investment transactions in the market requiring debt, it is perhaps unsurprising that the quantum of new loan originations declined in the first half of 2017,” said Ian Malden, head of valuation at Savills.
Non-bank lenders were able to buck the trend by offering more flexible terms than traditional banks. Their growing importance in the market was reflected by the fact that two non-bank lenders featured in the top-12 lenders by origination volume. It is the first time any non-bank lender has ranked in the top-12, which Peter Cosmetatos, chief executive of CREFC Europe, said showed “the diversity that now characterises the UK commercial property market.”
The mid-year De Montfort report also revealed that margins were starting to creep up, particularly for secondary assets. For senior loans secured by secondary offices, average margins edged up by 38bps from the end of 2016 to 301bps.
Average LTVs also remained low at 58%, which the report said reflected “caution regarding property values”.
However, there are also signs that lenders are willing to take on development risk in exchange for higher returns. Some 23% of all new origination went into development finance in the first half, up from 15% last year, which the report said reflected how “lenders are searching for extra margin income”.
Looking ahead to the rest of the year, lenders were optimistic about their prospects with 78% saying they planned to increase their originations for the second half.
When asked what they were concerned about, 51 lenders identified “property market fundamentals”. Among different lending groups, North American groups were the most concerned about the market situation.