Monday 19 February 2018

Commercial property loan defaults tumble

Commercial property loan defaults dropped last year
Commercial property loan defaults dropped last year

Neill Callanan

UK lenders cut the value of defaulted commercial-property loans on their books by almost half to about £23.2bn (€34bn) last year, helped by rising property values.

Bad loans were cut by about £21.5bn in 2014 according to a survey of 83 lenders by De Montfort University. The amount remaining in default is equal to about 15pc of the loan books, the report by the Leicester, England-based university estimates.

Defaults on commercial property loans spiked after the financial crisis of 2008, but as the economy has iomproved property prices have climbed higher.

Lenders had £8.3bn of provisions on bad credit at the end of last year, a decline of almost 11pc from 2013, after selling loans and disposing of underlying properties. Some of the assets sold for higher values than expected, allowing the lenders to "write back" part of the money they'd set aside to cover losses, the report said.

"The commercial real estate lending market recovery is now well and truly established, with the further reduction of outstanding loans and the significant fall in the number of distressed loans indicating a healthier and more competitive market than we have seen for years," British Property Federation chief executive Melanie Leech said.

The value of new loans advanced by lenders for commercial property rose 51pc last year to £45.2bn, according to the survey, the largest of its kind covering the UK. That's the most since £49.8bn of credit was issued in 2008.

UK banks and customer-owned lenders saw their market share of new loans decline to 39pc from 43pc last year. North American banks were the biggest gainers, increasing their share to 11pc from 5pc.

The total amount of outstanding loans was £181.3bn at the end of 2014 compared with 255 billion pounds at the peak in 2008.


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