2011 Will Continue To See a 'Limited' Commercial Mortgage Market
The availability of commercial mortgages and business finance to the property sector is still limited according to a new report from a leading UK property company. Jones Lang LaSalle's 2011 Lenders' Expectations Report found that lenders expected to lend lower amounts in 2011 compared with 2010.
The report surveys lenders' commitments to commercial mortgages and property in the UK. Whilst more of those questioned were willing to lend between GBP50 and GBP100 million in 2011, fewer thought they would be willing to lend above GBP100 million.
Jeremy Handley, director of Jones Lang LaSalle Valuation Advisory, 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 report comes after recent Bank of England lending figures showed that commercial mortgages and lending to real estate over the fourth quarter of 2010 fell by GBP16 billion to GBP221 billion; the largest drop since the series began in 1987.
Lenders expect the commercial property market to begin its full recovery in 2012. The Jones Lang LaSalle report showed that many lenders expected larger commercial loan deals of over GBP600 million from 2012 onwards when the market is expected to pick up again.
The majority of those questioned cited a maximum Loan to Value (LTV) ratio of between 60 per cent and 70 per cent in 2010, whilst several believe this will stay below 60 per cent over the next couple of years. Most do not expect commercial lending to be available over 70 per cent in the coming years due to legislation, regulatory changes and a lack of liquidity.
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 office sector is by far the most popular for new lending with an average weighting of over 40 per cent for each of the three years. Commercial lenders believe that the commercial office market is the easiest to manage and the most transparent which is why they are more likely to consider commercial lending in this area, especially in London.
Andrew Hawkins, a lead director in City Investment at Jones Lang LaSalle, said: "The lending markets are quick to change and fluctuate, and it has become clear throughout our interviews that credit conditions are shifting. A year ago we were predicting greater liquidity than we are now experiencing and the outlook is similarly challenged. There is without a doubt a polarising of debt provision with borrowers with strong existing relationships are well placed to access the lending markets, whilst although not impossible for new entrants, the challenges are still there."
So, if you are looking for a commercial mortgage to buy property, it could still be a difficult process over the next couple of years. You are likely to have to put down a higher deposit (around 30 40 per cent) and, if you are looking for a large loan, you may face restrictions on which lenders you can approach.
About the Author:
Howard O'Gollegos writes for Just Commercial Mortgages the UK's No1 site for the latest commercial mortgage rates and commercial property finance news.
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