Banks are holding back on UK commercial property lending as the COVID-19 pandemic hammers the economy, stoking fears about impending defaults.
Bloomberg reports new loans declined in the first half of 2020 by 34 per cent from the same period in 2019 to £15.5 billion, accord to a report from The Business School in the City of London. More than a fifth of lenders surveyed stated that had made no new commercial property loans in the first half of the year.
The survey sample included banks, building societies, insurers and other lenders.
The coronavirus crisis has plunged the UK into a recession as the government lockdown measures to restrict the spread of the virus have forced many businesses, especially in the hospitality sector, to close their doors, crippling their ability to pay rent, and also threatening property prices.
This raises the prospect of more loan defaults as the value of commercial properties decrease, leaving borrowers in violation of the terms of their loans.
“The short-term effects of the coronavirus pandemic have only just become visible, but the long-term effects will impact lending and banking into next year and beyond,” Nicole Lux, a senior research fellow at The Business School and author of the report, said in a statement.
Lenders have extended loans or provided short-term refinancing to struggling businesses, according to the report, but this could change in Q4, when enforcement actions may begin on property types such as retail, shopping centres, and hotels.
The amount lenders were prepared to offer against the best retail outlets averaged just over half of the value of the properties, the lowest level ever recorded by the research. Only 27 of the 76 lenders surveyed would offer a price for such loans.
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