UK CMBS refinancing still challenging, says Standard & Poor’s

The refinancing prospects of the UK’s €58bn of outstanding CMBS loans “remain challenging” according to ratings agency Standard & Poor’s.

S&P warned in its latest CMBS bulletin covering the second quarter of the year that the disparity between prime and secondary property yields could result in “repercussions for refinancing European CMBS loans, many of which are secured on secondary properties” and that “the refinancing of maturing loans will remain challenging in the coming quarters unless banks become less conservative and the rebound in the prime sector’s capital values spreads to the secondary sector”.

The report highlights that whilst UK prime properties have grown by 42% since 2009 and are on par with and in some cases above their peak values, secondary properties are still 20% below 2009 levels according to CBRE data.

The UK currently accounts for 60% of Europe’s outstanding CMBS loans and 46% of the European loans that are due to mature in the second half of the year.

Although the UK lending market has seen a resurgence in the past year the report points out that the average maximum loan-to-value ratios has come down to around 65% and that terms are more conservative than before the financial crisis. As a result of this, on a pan-European basis, there is a refinancing gap of €51bn for 2014 and 2015 combined, according to DTZ research.

According to S&P’s research, the outstanding balance of European CMBS loans that it rates fell during the second quarter by €1.7bn to €54.3bn – half the peak in 2008 – and the delinquency rate, the proportion of loans that have repayment problems, reduced by 1.8 percentage points to 41.8% and in the UK by 1.4 percentage points to 9.9%.