Cautious European banks could return to the UK in 2020, says Link

The Real Estate Finance business of consultancy Link Group, which is launching its fourth annual survey of the UK real estate debt market, expects to see greater supply of debt from German and other continental European lenders.

The availability of commercial real estate debt in the UK is likely to increase in 2020 as those continental European lenders that had stepped back from the market due to Brexit uncertainty make a return. That’s according to the the Real Estate Finance unit of consultancy Link Group.

The company is testing sentiment in the UK commercial real estate finance market with the launch of its fourth annual Market Trends Analysis survey, which can be accessed here. The deadline for taking the survey is Friday, 31 January. Real Estate Capital will publish analysis of the survey results in March.

The 2019 survey revealed that fewer lenders than in 2018 expected to see an increase in the size of their origination teams or their loan volumes. Most respondents in 2019 expected a decline in UK real estate values, and politics was viewed as the biggest threat to the sector.

James Wright, head of real estate finance at Link Group, said political factors including the uncertainty surrounding the UK’s exit from the European Union and the prospect of a change of government were viewed by many in the sector as risks this time last year. “It will be interesting to see if these are seen to have receded and which other issues come to the fore.”

Wright added that interest rates and global trade wars were also highlighted as causes for concern for property finance professionals in 2019. “Now, we have quite a lot of risk to oil prices, a new Bank of England governor coming in and London mayoral elections to look forward to,” he said.

The survey is expected to shed light on whether lending organisations that have been cautious about the UK in recent years will demonstrate a renewed appetite to lend in the market. “Insurers and pension funds showed strong appetite in 2019, but some of the very cheap lenders, such as German and other European banks, were less positive,” Wright said. “That could change, meaning a much greater availability of debt.”

The last survey showed that many lenders were negative about UK retail property, although Wright suggests appetite for lending to the sector has now “cratered”.

Another key finding of the 2019 survey was a clear increase in preference for longer-term debt, especially loans of more than 10 years. Wright said the desire for longer-dated debt among lenders and borrowers is likely to increase again in 2020, based on recent market activity witnessed by Link.