UK banks have recoiled from commercial property lending, leaving investors in the sector facing record margins, demands for greater equity and skyrocketing arrangement fees.
And the number of commercial property loans in default has soared 400% in just 12 months, according to a report due to be published today.
A survey by De Montfort University records the highest interest rate margins for senior debt in every sector as well as the sharpest annual increase.
Average loan-to-value ratios for almost all sectors were the lowest recorded, and all organisations increased arrangement fees substantially, reaching their highest levels by the end of 2007. Since then, most investors report that conditions have not improved for borrowers.
Bank lending to the property sector raced to record levels last year, before the market tightened as the credit crisis ended years of easy finance, according to the survey. Debt rose to a record £247bn in 2007, from £215bn in 2006, with some £200bn standing on the balance sheets of the lending banks.
This figure jumped 16% last year, partly owing to an estimated £11bn of debt that was intended to be securitised but that could not be distributed following the freeze on this market last summer. Instead, it now sits on the bank’s balance sheets.