Britain 
slowly pays 
debts left 
by property 
boom years

THE unwinding of racy real estate loans from the boom years continues at a slow but steady pace, according to the UK’s largest property lending survey.

The report, by De Monfort University, found that debt held against UK commercial property fell 4.3 per cent to £204.1bn during the first half of the year.

This was supported by a £12bn reduction in the outstanding value of high loan-to-value legacy debt from the boom years.

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The report said the total value of outstanding debt secured by commercial property stood at £285bn when researchers took into account Ireland’s bad bank, securitised loans and debt identified in organisations that did not take part in the survey.

De Montfort took evidence from 74 lending teams at 65 banks and other lenders.

It found that debt from the raciest loans – those with a loan-to-value of more than 70 per cent – fell by £12bn to £94bn as lenders tried to rebalance their books.

The report raised concerns that the prolonged financial crisis, coupled with loans issued at the peak of the property boom in 2007 now reaching maturity, has led to an estimated £48bn worth of loans being declared in breach of covenant or in default.

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They warned that this situation will deteriorate if there is a continuing decline in capital values.

The report revealed £11.3bn in new lending, with suggestions of a “flight to quality” in prime areas of London and the South-East.

Of this new lending, only five per cent was for commercial development. The report said this starkly illustrates the draining away of development finance.

Bill Maxted, the author, said: “The loan books are slowly rebalancing as lenders reduce the value of outstanding high loan-to-value legacy debt and increase the volume of loans with lower loan-to-value ratios more akin to those available in the market mid- year 2012.”

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Dominic Reilly, a director at Jones Lang LaSalle Corporate Finance, said most borrowers are able service their debt obligations.

He highlighted the role of insurance companies in providing 10 per cent of new loans.

Liz Peace, chief executive of the British Property Federation, said: “The slow unwinding of loan books continues and it’s encouraging that positive action is being taken by lenders to erode the amount of high-risk legacy debt.”

She voiced concerns about the lack of new development finance.

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