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News Release

London

Scarcity of Bank Lending Hitting UK Real Estate

Bank of England Q4 2010 Lending Figures


London, 3rd February 2011 – According to Jones Lang LaSalle, the latest Bank of England lending figures show that bank lending (in Sterling) to real estate in Q4 2010 continued to fall from its recent peak in Q1 2010, decreasing by £16bn between September and December. This represents the biggest drop in a single quarter since the series began in 1987.  Total lending outstanding fell to £221bn (including lending by building societies) at the end of December 2010, a 7% decline on Q3 figures, and a 10% 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 a percentage of total lending) fell to 10.7%.
 
“This dramatic decline in lending volumes was not wholly unexpected”, commented Barry Osilaja, director of Corporate Finance at Jones Lang LaSalle.  He continued: “These figures are indicative of the impact of an increasing number of redemptions and deleveraging generally, along with the ongoing restructuring and tidying of balance sheets by banks as they get to grips with existing problem loans. A fall in lending volumes was anticipated; however it has taken longer and slower than originally expected to have a significant impact on the overall real estate debt level. The decline has been exaggerated in the past three months by a lack of new origination, particularly from German lenders who had been active in the first half of 2010”.
 
Jeremy Handley, director of Valuation Advisory at Jones Lang LaSalle, added: “This trend is likely to accelerate over the coming quarters as banks continue to deleverage. Whilst there is a willingness to lend from some institutions, macroeconomic issues and reduced liquidity in the debt markets continue to inhibit loan origination. We are seeing the emergence of some alternative lenders including specialist mezzanine funds and life insurance companies. However, the key question is: will there be a liquidity crisis in the short term?”