Your browser is no longer supported

For the best possible experience using our website we recommend you upgrade to the newest version of your browser.

Your browser appears to have cookies disabled. For the best experience of Construction News, please enable cookies in your browser.

Welcome to the Construction News site. As we have relaunched, you will have to sign in once now and agree for us to use cookies, so you won't need to log in each time you visit our site.
Learn more

Commercial property debt falls but fears rise over covenant breaches

Debt held against UK commercial property fell 4.3 per cent to £204.1 billion during the first half of 2012, the UK’s largest property lending survey revealed today.

The UK Commercial Property Lending Market report by De Montfort University says “the slow unwinding” of commercial property debt is continuing.

But it says the ongoing financial crisis, along with loans dating back to the property boom in 2007 now reaching maturity, has lead to an estimated £48bn of loans being declared in breach of financial covenant or in default.

It says this will deteriorate if there is a continuing decline in the capital values of the commercial property securing historic loans. 

Outstanding debt secured by commercial property stood at an estimated £285bn at mid-year 2012, when including “big ticket items” such as Ireland’s ‘bad bank’ NAMA, loans secured by UK property and securitised into the CMBS market, and debt identified in non-contributing organisations.

The reduced debt figure was supported by a £12bn reduction in the outstanding value of high loan-to-value legacy debt.

Liz Peace, chief executive of the British Property Federation, said it is encouraging that positive action is being taken by lenders to erode the amount of high risk legacy debt.

“Of concern for us is the ongoing contraction in lending for commercial property development. Of the £11.3bn of new lending in the first half of 2012 only 5 per cent went to development. 

“While the big boys will be able to access debt from alternative providers, the rest of the market has to compete for an ever decreasing slice of the pie.”

The survey covers 74 lending teams from 65 banks and other lending organisations.

Bill Maxted, author of the report, said: “The loan books are slowly rebalancing as lenders reduce the value of outstanding high loan-to-value legacy debt and increase the volume of loans with lower loan-to-value ratios more akin to those available in the market at mid-year 2012.”

Dominic Reilly, director of Jones Lang LaSalle Corporate Finance and Head of UK Debt, said “for the most part borrowers are able to maintain their debt service obligations and that surplus rent after interest is available for repayment”. 

Have your say

You must sign in to make a comment

Please remember that the submission of any material is governed by our Terms and Conditions and by submitting material you confirm your agreement to these Terms and Conditions. Links may be included in your comments but HTML is not permitted.