MyIntroducer.com | News | Property industry faces debt refinancing challenge

MyIntroducer.com | News | Property industry faces debt refinancing challenge

Debt held against UK commercial property fell again during the first half of 2011 as the property finance market continued to show resilience in the face of global economic turmoil and stagnant UK growth.

The influential UK Commercial Property Lending Market mid-year report by De Montfort University, published today, found that the value of outstanding, on-balance-sheet debt fell from £208.4bn to £201.3bn in the six months to June 2011, a reduction of 3.4%.

However, it also delivered a stark warning of the scale of the challenge facing property lenders, revealing that around a half of this debt, in a range of £85bn-£114bn, could not be refinanced on current market terms and that one quarter was secured on a loan-to-value ratio of more than 100%.

The study, the largest of its kind to look at UK commercial property debt, estimated total UK debt of between £280bn and £292bn at midyear 2011 (down from £288bn to £298bn at the end of 2010) including £46bn outstanding in the CMBS market and an estimated £19.9bn held by NAMA - Ireland's "bad bank".

This continued the measured reduction in debt seen during 2010 that has so far avoided a fire sale of property assets and a collapse in capital values. Report joint author Bill Maxted said the "process of deleveraging continued at a modest pace during the first half of 2011".

However, the report found that the uncertainty triggered by the deepening Eurozone crisis and the lack of growth in the UK economy had exacerbated the ongoing lack of liquidity and increasing costs of capital in the property lending market. ......