Close to £43bn of loans to the commercial property sector are due for repayment this year, threatening default for property companies struggling to raise new money and piling further pressure on the UK’s banks to support corporate borrowers.
There is risk of a multi-billion pound funding gap, given indications that many banks will continue to retreat from lending on risky commercial property this year as the market continues to go through its worst slump on record.
The scale of loans in default and in breach has already accelerated fast, according to the influential De Montfort University survey of the real estate banking sector, which will be launched next week.
There has been a sixfold increase in the value of loans in breach of banking agreements, worth an estimated £15bn, while the number of loans in default jumped 800% to 3,230. This equates to about £6bn of loans when applied across the sector, according to the report’s authors.
Nine in 10 organisations reported loans in breach of covenants – double the previous year. About two-thirds put loans into administration during 2008, compared with a third in 2007.