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Bank lending to real estate in the UK continues to fall

According to Jones Lang LaSalle Q1 2010 Bank Lending Survey

London, 6 May 2010 – According to Jones Lang LaSalle, the latest Bank of England lending figures show that bank lending in sterling to real estate over Q1 2010 improved by £3.2bn, having fallen over the last two quarters.  Total lending reached £246bn (including lending by building societies).  The year-on-year growth in the volume of real estate lending has improved only marginally, from £1.9bn in March 2009 to only £2.3bn in March 2010, the second lowest growth recorded since March 1997.

The issue of major balance-sheet lenders distressed loan books remains a significant obstacle to any return to true normality in both the UK banking and real estate markets. Jeremy Handley, Director in Jones Lang LaSalle’s Valuation Advisory team, commented: “The slight increase in Bank lending is indicative of the continued caution in the lending market and suggests that the expected wave of bank-led property disposals has not commenced.  There is no expectation that it will start on a wide scale in the near future. There has been some evidence of security being enforced and LPA receivers or administrators being appointed, although most banks are restructuring where possible by following a policy of ‘extend and amend’.  Where loans are at risk of not fully repaying at their scheduled maturity date, but the sponsors are still servicing their interest, lenders are simply extending loan maturity dates in return for a quid pro quo, such as an increased margin or additional back-end fees. Lenders may also seek to claim a share in any upside in acknowledgment of their new position of increased risk.”

Jeremy concluded: “There is evidence of active competition between banks for new lending especially for strong cash flows. Competition has forced down margins for prime investments. LTV pressures are generally being resisted by most banks. The appetite for lending on developments is still very limited and we expect this to continue.”