UK Commercial Property Loans Worth £100 Billion May Not Be Refinanced



Commercial property investments in the UK could be set to take a tumble after it was revealed that outstanding bank loans worth more than £100 billion will most likely not be refinanced, following a tightening of credit conditions, Bloomberg reports.

UK property loans

The UK's property markets could be heading towards trouble. © Vladimir Wrangel - Fotolia.com

The UK Commercial Property Lending Market Survey warned that UK banks’ ability to manage their commercial loans could be destabilized as a result of the worsening Eurozone crisis, something that could lead to the collapse of the country’s entire property market if no action is taken.

The survey, which was carried out by the De Montfort University, highlighted just how fragile UK markets were – it said that one quarter of all loans on commercial property in the UK, worth £28.5 billion, were now valued higher than the assets they are backing. Researchers also claimed that between £85 billion and £114 billion of loans on UK commercial properties “could not be refinanced on the current market terms”.

Banks have been actively pursuing a policy of “measured” debt reduction since 2009, something which has prevented the fire sale of numerous assets and the overall collapse of the market, said De Montfort.

However, the uncertainty resulting from the ongoing Eurozone crisis, combined with a lack of economic growth in the UK has exacerbated problems concerning a lack of liquidity and the rising costs of capital.

The findings have led to the British Property Federation (BPF) calling on the government to relax its rules so that new lenders would be able to enter the market and prop things up.

According to Liz Pearce of the BPF, the results of the study confirm how urgent it is that the UK government does everything it can to tackle the country’s property debt, something that would entail using all the tools at its disposal in order to do so. Pearce said that the government urgently needed to encourage new buyers to enter the market – which could be achieved by reforming UK real estate investment trusts so that mortgage REITS can be created.

Furthermore, added Pearce, the government needs to do more to encourage new investment and kick start economic growth in the UK. She told Bloomberg that one idea would be to refrain from charging full business rates on commercial properties which are lying empty, as this is a significant disincentive for landlords.