Saturday 26 May 2018

UK defaults hit record levels as lenders now get tough

London's One Hyde Park luxury apartments
London's One Hyde Park luxury apartments

Patrick Gower

UK commercial property lenders pushed defaults to a record high last year as rising values and an improving economy spurred them to get tougher on long- delinquent borrowers.

Loans in default climbed 13pc to £24.5bn (€30bn) as banks became more willing to "pull the plug" over late repayment, according to data from a De Montfort University survey of 76 lenders. The value of other loans in breach of their covenants declined 21pc to £15.8bn.

"There has been a lot of pretend and extend as lenders worked through their loan books to take into account falling values and the lack of money available for refinancing," said Bill Maxted, a senior lecturer at De Montfort. "Now that values are improving and provisions are rising, they're demanding repayment."

Write-offs on commercial real estate loans were three times higher than those for residential mortgages since the collapse of Lehman Brothers Holdings Inc in 2008 as values fell by more than 40pc, the Bank of England said on May 30.

After cutting outstanding debt and increasing provisions against future losses, banks are now cleansing their balance sheets of problem property debts as they undertake new lending.

UK commercial-property values have risen 8pc over the past year, according to Investment Property Databank.

Offices led gains in April with total return of 1.8pc compared with 1.5pc for warehouses. Total return combines rental revenue and changes in property values.

The improvement is encouraging lenders to free up money for property firms increasingly hungry for debt as the economy heads for its best year since 2007, the Bank of England found in its first-quarter Credit Conditions Survey.

"There's been an incredible transformation in the lending market over the past 24 months," said Nick Leslau, who led the June 5 London initial public offering of Secure Income REIT Plc.

"It's giving banks the confidence to start tipping things over and making sales because there's now a market to sell into."

Indo Business

Business Newsletter

Read the leading stories from the world of Business.

Also in Business