The Commercial Mortgage Market Will Remain 'Limited' in 2011
The amount of commercial mortgage lending and business finance that is available to the property sector is still comparatively low, according to a worrying report from a leading UK property company. Jones Lang LaSalle's recent 2011 Lenders' Expectations Report uncovered the fact that lenders were expecting to lend even lower amounts in 2011 than 2010.
The indications are that the number of organisation this year who are prepared to lend larger sums (in excess of a hundred million pounds) on commercial property will reduce compared to this time last year. This however may be offset as more lenders are prepared to help businesses who require less than this.
Director of Jones Lang LaSalle Valuation Advisory, Jeremy Handley said: "'The rollercoaster of financial crisis and sovereign debt continues and it seems certain that the European banking crisis is going to have profound and long lasting implications for the commercial property sector."
The rather unsettling picture of lending in the marketplace that the report paints follows recent and similarly pessimistic Bank of England lending figures. The figures showed commercial mortgages and lending to real estate over the fourth quarter of 2010 fell by £16 billion to £221 billion; the largest drop since the series began in 1987.
The survey indicated that 2011 might turn out to be a 'lost year' in the property market. Many lenders hope the commercial property market to will start to recover early in 2012. The Jones Lang LaSalle study highlighted that lenders anticipated larger commercial loan deals of in excess of £600 million from 2012 onwards when the market is to fully recover.
Of those questioned the majority said they had been prepared to offer a maximum Loan to Value (LTV) ratio of between 60 per cent and 70 per cent last year. Some of those surveyed predicted that this will be even lower in the coming year and lie below 60 per cent. This is a trend that is set to continue for the next few years. The majority of lenders do not anticipate lending rates to be over 70 per cent in the coming years due to legislation, preventing 'irresponsible lending'.
However, many lenders expect commercial mortgages to be available at higher LTVs from 2012. 37 per cent expect the maximum LTV to be above 70 per cent although none expect to see loan to values above 80% by 2013.
The most popular area in new lending is the office sector, it is a corner of the market that has managed to attract an average 40 per cent weighting in the last three years. Lenders in the commercial office sector are often attracted to this type of letting because of its easiness to manage and its transparency. This sector is, unsurprisingly, at its most popular in London.
Even though the outlook is better the diagnosis a year ago was even better but that just hasn't transpired. So the market is improving but not at the expected rate, Mr Over Optimistic strikes again. Mr A Hawkins of LaSalle said they were predicting greater liquidity and that the future looked just as challenging. If you have existing borrowings and a good record then accessing the lending market should be easier than for those trying to enter the market for the first time. But as we have seen the volatility of all financial markets can generate up and down swings that have short and long term consequences!
If you are thinking about building a portfolio of commercial property, it could still be a difficult couple of years ahead. You are going to have to put down a higher deposit than you normally would have to (around 30-40 per cent) and there is also likely to be some major restrictions on which lenders you can do business with, particularly if you are looking for a large loan.
About the Author
Timothy Frodsham writes for http://JustCommercialMortgages.com the UK's No.1 site for the latest commercial mortgage rates and commercial property finance news.
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