UK commercial property racks up £50bn of bad debts
The extent of the bad debts among loans made by UK banks to the commercial property sector is only just being recognised, says new research published today in Property Week. The report shows why banks are only considering the very safest loan prospects as they restart lending to the UK property industry.
The annual report on commercial property lending from De Montfort University says that a fifth of the UK’s outstanding property debt of around £250bn consists of problem loans – i.e. loans that are in default or in breach of their terms. Loans in default jumped to nearly £22bn in 2009 from £3bn the previous year, while loans in breach of terms rose almost threefold to £28.3bn.
The report’s authors say that, now that banks have had time to identify their problem loans, the 2009 figures show for the first time the true extent of the difficulties they are facing with regard to bad debts on their property loan books.
They also warn about a “funding gap” that is rapidly approaching: “With an estimated £55bn of loans due to mature during 2010 and only £15.1bn of loans originated in 2009, the magnitude of the potential funding gap that exists in the market is clear,” the report adds.
The £15.1bn of new loans in 2009 compares with £49.2bn in 2008. Just four banking organisations account for 45% of the 2009 lending total, showing that competition was hardly fierce. However, the report says that those banks that are indeed lending are doing so profitably, which is encouraging greater competition – better news for borrowers.
