JLL: Bank lending to real estate continues to fall (UK)
Wednesday 3 November 2010
According to Jones Lang LaSalle, the latest Bank of England lending figures show that bank lending (in Sterling) to real estate in Q3 2010 continued to fall from its recent peak in Q1 2010, decreasing by £4.5 billion (approx. €5.1 billion) between July and September. This represents the biggest drop in a single quarter since the series began in 1987.
Total lending outstanding reached £240 bln. (including lending by building societies) at the end of September 2010. UK bank exposure to real estate (i.e. the proportion of lending to real estate as % of total lending) remained stable at 11.2% for the third consecutive quarter from a high of 11.8% in September 2009.
The slow recovery process is being characterized by a conservative and risk-averse approach to lending. Jeremy Handley, Director in Jones Lang LaSalle’s Valuation Advisory Group, commented: “The latest Bank of England Real Estate lending figures show a further drop in outstanding debt to the sector and the largest reduction in absolute terms since at least 1986. The total reduction in Real Estate debt as measured by the Bank of England over the last year is now over £5.2 bln. This change reflects both banks’ reduced appetite for property lending and also an increase in the speed at which they are de-leveraging.”
He adds: “Banks remain cautious towards real estate lending and the availability of debt for the development of secondary/risky situations remains limited – and has deteriorated over the last few months. In addition, there are signs that banks are taking a more aggressive stance toward “work out” situations as the growth in the market stalls and pricing for secondary assets has come under pressure. I would expect banks to apply increased pressure on borrowers in default now that it looks unlikely that the market will get them out of trouble in the short term.”