A bi-annual report produced by De Montfort University has revealed that both the economic conditions across the euro zone and the recently disappointing domestic data continue to take their toll on confidence amongst UK property lenders.
The report, which gathers data from 74 lending bodies, showed that the proportion of banks planning to increase lending for property-based investments has dropped to 42 percent. This indicates a steady decline in confidence in the last two years (down from 57 percent in 2010 and 44 percent in 2011). Following the collapse of US investment bank Lehman Brothers in late 2008, the rate plummeted from around 90 percent to just 23 percent.
Whilst some larger firms have been able to tap into alternative financing structures such as the bond markets, the reluctance of banks to lend could leave mid-sized and smaller property groups facing real challenges in fundraising during in the early part of 2013.
The difficulties being experienced by banks such as RBS and Lloyds, which are seeking to offload loans secured against commercial properties whose value has plunged in the last few years, is undoubtedly resulting in further reluctance to lend. The sense of caution also extends to other lenders such as insurance companies, who are unsurprisingly reticent to lend where the banks have become cagey.
The co-author of the report Bill Maxted said “I talked to people who have been in banking since the early 1970s and they say they’ve never seen a situation like this.” With lending confidence showing no signs of recovering in the near future, UK property firms may find themselves having to explore more creative avenues of fundraising over the coming months. Let us hope that these new avenues are plentiful and readily available.