FSA chairman calls for property loan restrictions
Lord Adair Turner, chairman of the Financial Services Authority, this week told a parliamentary committee that a crackdown on commercial property lending is needed. He said that more work needed to be done to increase loan rates or tighten borrowing terms, to ensure that money flows into more “useful” sectors.
He said: “A quite startling percentage of UK credit extension to the non-financial corporate sector in the last 20 years has been to commercial real estate.”
“Although some of that new urban development, new office development, new retail development is part of the value-creative process of society, some of it is not to do with new investment but is simply leveraging of assets to take advantage of the tax deductibility of interest payments,” he added.
Turner said that in contrast to property, sectors such as manufacturing accounted for as much in deposits to UK banks as they took out in loans.
The Economist commented that Turner has been outspoken about the need for banking reforms following the credit crunch, and noted that the commercial property sector together with home loans attracts 80% of all bank loans to non-financial borrowers in Britain. In future, banks might face differential capital charges depending on which sector they lend to, in the hope of channelling cash into sectors that promise steadier growth. This is not a new measure: Indian, Canadian and Hong Kong regulators do it already, The Economist notes.
But Turner has stopped short of calling for more radical measures, it points out, and if the opposition Conservative Party wins the forthcoming general election it has pledged to return banking supervision to the Bank of England, leaving the FSA heavily circumscribed.
