UK Banks Are Still Being Cautious Despite Commercial Mortgage Forecasts Looking Healthy
The Government have recently announced that in order for banks to qualify for their bonuses in 2011, there will need to be a rise in commercial lending for the year. This new measure was introduced in order to see more funding being ploughed into small businesses to aid economic recovery.
The Government, anxious to create a recovery led y the private sector have placed conditions on the banks, obliging them to lend to industry and small businesses. This would be fine if it weren't for the conditions that the banks have attached to the deal. They have set aside large sums of money but won't necessarily lend to businesses where there is too much risk or too little profit.
Tenant demand for commercial property in the UK has stabilised. That's the conclusion of a recent report from the Royal Institution of Chartered Surveyors (RICS). The RICS survey has revealed that tenant demand for commercial property had a net balance of zero in the final quarter of 2010, up from minus six in the previous quarter.
But it has also come to light in recent weeks that business property sales figures are very strong for the first part of 2011. Throughout the country, surveyors are reporting that the commercial property market is seeing its best sales figures since 4 years ago. This shows a huge u-turn on the outlook at the end of last year.
RICS also found that surveyors believe that more commercial property is coming to the market. This is despite reports in late 2010 from Knight Frank who found that a lack of available commercial property in London was leading to sharp increases in property values.
Whilst London commercial property prices may be increasing, the same may not be true of all UK areas. "Regional variations are becoming increasingly visible with the picture on rents and capital values broadly reflecting the emerging economic recovery" said the property group, who reported that demand from tenants and buyers in London was stronger than elsewhere.
Even though the right market conditions for business to expand seem to be present, it is still exceedingly difficult for companies who want commercial mortgages to get them. A report from commercial property advisor CBRE says a third of the lenders previously active in the commercial mortgage sector have pulled out since 2007, leaving a huge lending shortfall.
A report has recently shown that less than 70% of commercial lenders were actually lending money for the purposes of commercial property purchases. In the last 4 years, almost 40 commercial lenders have withdrawn from the market. Lenders continue to pick the loans that they are comfortable with lending making things difficult for companies to get to where they want to be in terms of expansion.
Although Project Merlin is now in full swing, it would appear that the targets may be unrealistic, considering that many of the commercial lenders are no longer in the commercial markets. This means that the remaining lenders who are still offering commercial mortgages have to work much harder to lend out enough to hit the targets in order to receive their bonuses for this year.
This situation seems a bit of a 'watch this space' one, as it could go either way. It's still early in the year so the next few weeks will hopefully tell a clearer story.
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