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News Release

London

Banks Deleveraging Dramatically as Largest Ever Quarterly Decline in Real Estate Lending is Recorded

According to Bank of England Q1 2011 Lending Research


London, 6th May 2011 – According to Jones Lang LaSalle, the latest Bank of England quarterly lending figures show that bank lending (in Sterling) to real estate fell for a fourth consecutive quarter, decreasing by £33bn between January and March 2011. This represents the biggest drop in a single quarter since the series began in 1987, surpassing the £16bn decline recorded in Q4 2010.  Total lending outstanding to real estate fell to £189bn (including lending by building societies) at the end of March 2011, a 15% decline on Q4 2010 figures, and a 23% decline from the peak of £247bn in March 2010. UK bank exposure to real estate (i.e. the proportion of lending to real estate as % of total lending) fell to 9.2% from 10.7% in Q4 2010.
 
Although a further fall in lending figures was projected this quarter, the actual £33bn decline was larger than foreseen. Whilst this suggests that the expected reduction of banks’ real estate exposure is starting to materialise, this may also, in part, be due to the way in which the Bank of England now compiles its statistics. “This reduction in volumes is being driven by two issues”, said Barry Osilaja, Director of Pan-European Corporate Finance at Jones Lang LaSalle.  Barry continued:“Firstly, banks are finally addressing the problems on their balance sheets, with deleveraging gathering pace as a result. Furthermore, lending remains muted for new borrowers, with a significant number of existing loans due to mature in the next two years. We expect the lending market to become further restricted later in 2011 and in to 2012 as these issues continue to inhibit lenders’ behaviour. Borrowers with imminent refinancing requirements will need to consider their options carefully, and act as early as possible to ensure the best chance of success.”
 
However, whilst the criteria used by UK banks in their decision-making process are becoming increasingly stringent, those seeking funding for real estate transactions can still find it. Jeremy Handley, Director of Valuation Advisory at Jones Lang LaSalle, added: “The pool of banks that are willing to lend to real estate is small and getting smaller. Lenders are seeking clients with whom they have long-standing relationships and who have a comprehensive understanding of the market. Whilst appetite for what will be approved by a credit committee remains focused on prime and lower risk situations, a case can be made for assets in, for example, Central London and for shopping centres. Margins remain high compared to levels seen at the start of 2010 but we are beginning to see some stabilisation within the market.”
 
Please note that from January 2008 this series now includes data reported from building societies. In addition, changes to the standard classification reporting system mean that this series no longer includes the development of buildings and has been adjusted out of the flows data for January 2011.