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Commercial real estate lending market becomes more competitive

According to De Montfort University's Commercial Property Lending Market report, debt held against UK commercial property fell by 2.5% from the end of 2012 to £193bn at mid-year 2013.
The UK's largest property lending survey confirmed industry sentiment that the commercial real estate lending environment is becoming more benign.

A number of promising indicators were revealed in the report showing that the property lending market is cautiously emerging from the worst of the credit squeeze, including more favourable lending intentions, a downwards move in interest rate margins and an increase in the loan-to-value ratios (LTVs) at which people are prepared to lend.

At mid-year 2013, lenders for banks, building societies and insurance companies showed increasingly positive future lending intentions, with 52% of teams intending to increase loan book size and 57% to increase loan originations, against 46% and 54% respectively at year-end 2012. Those categorised as 'other non-bank lenders' were particularly optimistic, with all of those sampled intending to increase both their loan book size and loan originations during 2013.

However, interest rate margins across all sectors continued the decline that began between mid-year and year-end 2012 - the first such decline recorded by the De Montfort study since year-end 2006. The fall was greater in H1 2013. The average margin for loans secured by prime office, for example, decreased from 323.8 bps in year-end 2012 to 280.3 bps at mid-year 2013.

Increases in LTVs were recorded for loans secured by all prime and secondary commercial property sectors, except for those applied to secondary retail property. The average LTV for loans secured by prime office property increased in H1 2013 from 64.2% to 65.1%, while those for the secondary office property market increased from 58.9% to 60.4%.

Ion Fletcher, director of policy (finance) at the British Property Federation, said: 'Overall the survey's results are indicative of an improving commercial real estate market and offer welcome news for the industry. Observers can expect the 2013 full year survey to be even more bullish, as much of the market positivity we're currently seeing has developed even further since the summer.

'The fall in interest rate margins, the bump in LTVs at which people are willing to lend, and more optimistic lending intentions all point towards a more competitive lending environment in which finance providers are increasingly willing to contemplate transactions outside of London and the South-East. This trend should be supported further by broader economic recovery,' he added.

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