New UK loans soar to post-crash high of £45bn

New loans to UK commercial property leaped by over 50% in 2014 almost recovering to pre-crash levels as alternative lenders entered the market in record numbers.

De Montfort University’s Commercial Property Lending Report for 2014 showed loan originations jumping from £29.9bn in 2013 to £45.2bn last year, the highest figure since 2008’s £49.8bn. Insurance companies and other non-bank lenders accounted for 25% of new loans.

The total value of outstanding debt declined from £180bn in 2013 to £165.2bn last year. Alternative lenders accounted for 6.5% of the total, almost doubling their 2013 share of 3.7%, and insurance companies provided 12.7%, up from 10.2%.

Secured lending to commercial property became more attractive to these organisations due to regulatory changes and business opportunities created by the withdrawal of banks from the sector.

The market appeared to have worked through the legacy of pre-crisis loans that had characterised the post-crash years. The value of distressed loans more than halved from £44.7bn in 2013 to £21.1bn last year.

Peter Cosmetatos, chief executive of the Commercial Real Estate Finance Council Europe, said: “It’s good to see the UK CRE finance market normalising after some very tough years. While some may worry that the market is becoming so competitive that it may be overheating, the report in fact shows a more complex picture with plenty of opportunities for the right lenders.”

“There are continuing challenges both for development finance and for small ticket lending, two areas where few lenders seem active, but which are critically important for the economy, especially in the regions.”

Lending intentions remained strong with 82% of providers planning to grow their loan book and 84% intending to increase originations.

However, the market for commercial development finance remained relatively challenging. Only 17 organisations were willing to lend against fully pre-let developments. That number drops to just seven prepared to back 50% pre-let:50% speculative schemes. And only five lenders wanted to lend against solely speculative commercial developments.