Skip Ribbon Commands
Skip to main content

News Release

London

Net property lending down whilst debt mountain continues to loom large 


According to Bank of England Q2 2011 Bank Lending Statistics


London, 9th August 2011 – Liquidity problems in the banking sector, the legacy of the property slump and rising debt costs have continued to constrain credit availability to real estate as bank lending to the sector fell for a fifth consecutive quarter, according to Jones Lang LaSalle. The latest Bank of England quarterly lending figures show that bank lending (in Sterling) to real estate decreased by only £713m between April and June 2011.

However, whilst net lending for property fell marginally for a fifth quarter, the debt mountain facing banks remains substantial, with UK bank exposure to real estate (i.e. the proportion of lending to real estate as % of total lending) remaining static at 9% from Q1 2011. At £189bn total lending outstanding to real estate was 23% down in Q2 2011 from the peak of £244bn in June 2010, although borrowing decreased less than 1% from the total amount outstanding in the previous quarter. Whilst a proportion of the large drop in Q1 2011 can be attributed to the way in which the Bank of England compiles its statistics, credit markets have been extremely volatile over the quarter due to uncertainty in the Eurozone and an increasingly fragile banking sector, which has impacted on credit availability. 

Barry Osilaja, Director of Corporate Finance at Jones Lang LaSalle said; “Bank de-leveraging still has a long way to go: whilst loans have been repaid in net over the quarter, the debt mountain and banks’ exposure to the real estate market continues to loom large for lenders."

“Future lending for the rest of the year is expected to remain constrained, even if interest rates are held at their current low level” adds Jeremy Handley, Director of Valuation Advisory. “However, some German lenders, including Pfandbrief issuers and local banks are still lending for core assets with good covenants. The quality of the property and cashflow are still key for lenders with very few banks prepared to take on secondary risk. We are also seeing an increase in the amount of loan book sales, which a number of banks are using as a way to reduce exposure. Should this prove to be successful, this could have a positive effect on lending in the coming year. ”