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Non-bank lenders will compete on price and leverage in 2018, says Link

The Real Estate Finance unit of Link Asset Services, which is launching a survey of the UK property lending market, expects to see alternative lenders encroach further into banking territory.

Alternative lenders in the UK real estate market will broaden their product offering in 2018 to compete more effectively with the sector’s traditional bank lenders, the Real Estate Finance unit of Link Asset Services – formerly Capita Real Estate Finance – has predicted.

The firm, which is conducting its second survey of the UK real estate debt market, expects to see non-bank lender types, including debt funds and peer-to-peer platforms, increase their capacity to offer margins and leverage levels typically associated with senior banks as they expand their presence in a competitive UK market.

The survey, which can be found here and is open until 31 January, is intended to provide a snapshot of the lending terms on offer in an increasingly diverse UK real estate lending market. The findings will be published at the MIPIM conference in March, when Real Estate Capital will provide analysis.

The results of the firm’s inaugural Market Trend Analysis report were published in June 2017 and showed a diverse mix of lenders willing to finance “almost everything” in the UK property market, although the leverage and pricing they were prepared to offer at the time varied significantly.

In total, it surveyed 89 lenders across 12 distinct categories on their lending appetite, intentions and projections. The results showed that more than 70 percent of lenders were aiming to increase loan volumes in the subsequent 12 months, with around half of respondents expecting to expand their lending teams.

Speaking to Real Estate Capital, James Wright, head of real estate finance at Link Asset Services, said the second survey is likely to highlight that lenders are offering more competitive terms.

“In last year’s report, we noted lenders seeking to expand the range of their lending capabilities into new areas in order to deploy capital in a market with lower transactional volume. Stability was the consensus on leverage and rates. This year, we might expect to see lenders increasingly ready to compete on pricing and leverage again,” said Wright.

The June 2017 report showed that average margins and average maximum loan-to-values across the sample converged within the 200-300 basis points and 65-75 percent ranges, respectively, although some alternative lender groups were offering significantly higher leverage at higher price points. Hedge funds, for example, were offering maximum LTVs of between 90 percent and 95 percent at average margins of close to 700 bps. Alternative lenders, including single mandate lenders and family offices, were topping out around 75 percent LTV for more than 600bps average margins.

However, Wright expects to see some alternative lender groups edge towards the main lender pack, as debt fund managers increase their senior lending capabilities and peer-to-peer lenders reduce their costs of capital by raising money from institutional, rather than just retail, sources.

“Debt funds, challenger banks and peer-to-peer networks demonstrated an ability to offer lower rates than previously as their cost of funds decreased. We would expect those lenders to increasingly move into senior banking product territory,” Wright added.

Australia-based Link bought Capita Asset Services from its parent company for £888 million (€998 million) in June 2017, in a deal which Link Group chairman Michael Carapiet said would expand the group’s “footprint in the UK and Europe in business lines we understand well”.