The Commercial Mortgage Market Is 'Still Limited' In 2011 and Will Remain So For A While

Article Written By: Howard O'Gollegos

A recent publication from Jones Lang LaSalle a global real estate services firm, specialising in commercial property management, leasing and investment management (and a company named as investment agent of the year at the Property Awards 2010), indicated that this year we would expect to see a reduction in the accessibility of larger commercial mortgages.

The report surveys lenders' commitments to commercial mortgages and property in the UK. Whilst more of those questioned were willing to lend between 50 and 100 million in 2011, fewer thought they would be willing to lend above 100 million.

So as you would expect the issues that have affected the global economy are having a significant impact on the UK commercial property market and the consequential knock on effects for business are impacting growth. And this is all backed up by the statistics with borrowing on property falling by 7% in the last three month of last year and commercial lending falling to an all time low.

Lenders expect the commercial property market to begin its full recovery in 2012. The Jones Lang LaSalle report showed that many lenders expected larger commercial loan deals of over 600 million from 2012 onwards when the market is expected to pick up again. The majority of those questioned cited a maximum Loan to Value (LTV) ratio of between 60 per cent and 70 per cent in 2010, whilst several believe this will stay below 60 per cent over the next couple of years. Most do not expect commercial lending to be available over 70 per cent in the coming years due to legislation, regulatory changes and a lack of liquidity.

Again though as the recovery builds up steam this deposit requirement will reduce and lenders forecast that in a couple of years time we will see deposit rates reduce to pre-crisis levels of somewhere around the one fifth mark.

The most popular area in new lending is the office sector, it is a corner of the market that has managed to attract an average 40 per cent weighting in the last three years. Lenders in the commercial office sector are often attracted to this type of letting because of its easiness to manage and its transparency. This sector is, unsurprisingly, at its most popular in London.

Andrew Hawkins, a lead director in City Investment at Jones Lang LaSalle, said: "The lending markets are quick to change and fluctuate, and it has become clear throughout our interviews that credit conditions are shifting. A year ago we were predicting greater liquidity than we are now experiencing and the outlook is similarly challenged. There is without a doubt a polarising of debt provision with borrowers with strong existing relationships are well placed to access the lending markets, whilst although not impossible for new entrants, the challenges are still there."

In summary we have had it tough recently and companies looking to purchase assets via the commercial mortgage market have found it particularly hard especially with the stringent requirements and larger deposits. This year we may see things get better and we would hope to see that improvement sustained throughout 2012 and 2013.

About the Author

Howard O'Gollegos Just Commercial Mortgages the UK's No1 site for the latest commercial mortgage rates.

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