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News Release

London

Bank lending to commercial real estate continues to decline despite rising availability of credit

JLL reacts to Bank of England Q2 2014 Bank Lending Data published today


London, 29th July 2014– UK banks’ exposure to real estate continued to decline in Q2, according to the latest figures produced by the Bank of England (BoE) with new lending remaining significantly lower than the 2007 peak.


UK banks’ outstanding debt to real estate declined by £2.3 billion in Q2 to £137 billion, which represents 7.1 percent of UK banks’ total outstanding debt. This signifies an annual decline of 15 percent in outstanding debt to real estate, compared to a 3 percent fall in outstanding debt across all sectors in the same period.


Jeremy Handley, director of Valuation Advisory at JLL, said: “The latest figures highlight the continued deleveraging by UK banks to real estate. This is in contrast to the marked improvement in sentiment in the lending markets, highlighted by the BoE’s Credit Conditions survey, which showed availability and demand of credit to real estate improved significantly over the past 12 months.”


Chris Holmes, head of EMEA Debt at JLL, added: “The larger role being played by equity in the markets is not reflected in these figures. The lending market is becoming increasingly fragmented with alternative sources of capital continuing to pick up the slack from UK banks. Indeed, the sheer weight of money coming into the real estate sector is driving down margins, as non-traditional lenders are more willing to move up the risk curve to look for opportunities. As a result of this competition, banks are having difficulty placing available capital in the markets even though their funding costs continue to decline.