Savills: Lender appetite strong but concentrated on prime stock

Lenders’ appetite to finance UK real estate remains strong, with around 250 organisations willing to provide debt, the audience at Savills’ 29th Financing Property presentation in the City of London heard this morning.

The lending market continues to diversify, with property companies the latest group to enter the lending space, said Nick Hume, director in Savills’ valuation division.

Savills highlighted that with the wide spread between the all-in cost of money and the UK all-property equivalent yield, UK property remains “hugely attractive and financeable”. The firm referred to De Montfort University findings that 81 percent of lenders expressed a desire to increase their loan books in 2017, with an additional 14 percent wanting to maintain existing levels.

However, much of the lending appetite is focused on prime property, which has generated increased levels of competition due to a lack of available product.

“Whilst the strong desire to lend is generating increased competition in the market, we are in a hugely multi-faceted environment where lenders are compartmentalised into niche groups focusing on different areas. However, with the prime sector at the top of the agenda for the majority, the balance of power sits firmly with the borrower for this type of product,” said Ian Malden, head of valuation.

“So where are the opportunities for lenders where the balance of power is reversed in their favour?” asked Hume. “We have seen it before, but in the current landscape of lower investment volumes following the EU Referendum, a lack of prime product and a lower return environment, diversifying and specialising has never been more poignant for lenders. Lenders can either remain with a low risk strategy and compete in a wider market or re-evaluate and selectively go up the risk curve.”

Hume highlighted the main opportunity areas for lenders in the UK as: diversifying by sector; looking to regional cities; reducing the size of the target loan; considering good secondary products; extending focus to emerging players in the market and refinancing.

“There are opportunities, but you need to do your homework,” added Hume.