New lenders circle battered UK property market
LONDON, June 4 (Reuters) – An influx of new lenders to the UK commercial property market could help avert the kind of extended slumps which followed corrections in the 1970s and 1990s, global property services firm Savills said. At its annual property financing presentation in London’s City business district on Wednesday, William Newsom, Savills UK head of valuations, said a host of new banks were circling near-barren money markets to take advantage of a “brilliant time” to lend.
Average commercial property prices have fallen around 17 percent in the last 12 months and could have further to fall, while earlier this week Britain’s largest buy-to-let mortgage lender Bradford & Bingley revealed a worrying surge in bad debts. Bu Newsom said lenders fall into two camps. “Those that are able to lend are having a joyous time, the others are sick as parrots,” he said. “Last year was a borrowers’ market. But we’re seeing highest margins for eight years, lowest loan-to-value (ratios) for eight years and arrangement fees are said to be the highest on record… That is proving a magic combination for some lenders.” He said 16 banks had extended operations to Britain’s commercial property market in the last year, including one of Spain’s largest savings banks La Caixa, Unicredit, the National Bank of Abu Dhabi, BBVA and Wachovia. Mat Oakley, head of commercial property research at Savills said September will be a key month for many investors and lenders in the market. “An awful lot of people will come back from their summer holidays and ask themselves whether they feel more comfortable about the market today than they did 12 months ago. ...If the majority of people feel better, then I think we will see the dawn of recovery,” he said. While acknowledging the UK economy would be challenged by the ongoing credit squeeze and falling house prices, Savills said Britain was headed for a “short, possibly unpleasant but not deeply worrying” commercial property correction. Savills said the UK was still Europe’s leading financial centre and this status underpinned consistent, albeit more cautious, investor demand for commercial real estate. It said retailers were still moving into new premises, although they were looking more closely at cost-effective locations. Oakley said properties let to supermarkets venturing into general merchandising would remain solid investment bets, while budget retailers like Primark would prosper in a tougher economy. Looking at office property, Oakley said job cuts were likely to be contained within London’s banking sector with little prospect of spreading to other UK cities or sectors. As a result, Savills said investors would head towards UK regional office markets, which exhibited lower rental and capital value volatility and were less exposed to international economic trends. (Editing by Erica Billingham)
By Sinead Cruise
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