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News Release

London

Substantial decline in bank lending to real estate

According to Jones Lang LaSalle Q2 2010 Bank Lending Survey


London, 9th August  2010 – According to Jones Lang LaSalle, the latest Bank of England lending figures show that bank lending (in Sterling) to real estate in Q2 2010 has dropped by £3.5bn following slight improvement in Q1 2010.  This represents the biggest drop in a single quarter since the series began in 1987.  Total lending outstanding reached £244bn (including lending by building societies) at the end of June 2010.
 
UK bank exposure to real estate (i.e. the proportion of lending to real estate as % of total lending) has declined from a high of 11.8% in mid-2009 to 11.2% at the end of June 2010. This is likely to drop further in the near future as banks continue to manage their balance sheet exposure to real estate and deal with the legacy of distressed loan portfolios.
The statistics are not necessarily a reflection of the reluctance of banks to lend to real estate. Bank debt is still available for property investors purchasing prime assets at sensible loan to value. Instead, the figures represent the fact that banks are beginning to actively deal with problem loans on their balance sheet.
 
Barry Osilaja, Director in Jones Lang LaSalle's Corporate Finance team, commented: “This significant decrease in outstanding bank lending, despite anecdotal evidence that some new loan origination is taking place, suggests that banks are beginning to manage their problematic property loans. As this week’s announcement of strong results by a number of banks suggests, lenders are beginning to recover some balance sheet strength. This has enabled them to begin taking the write downs that are necessary to exit some of their distressed lending positions. Whilst the Bank of England figures suggest that lending to Real Estate has reduced, this indicates that lenders are slowly starting to solve their problems. In the medium to long term this is positive news for UK real estate. In the short term, however, the market for lending is likely to remain restricted to prime assets, and net lending may continue to reduce.”
 
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