Study: debt providers 'more prepared to lend’

Analysis by Jones Lang LaSalle says ‘selective banks’ are willing to lend, though loan-to-value ratios are unlikely to improve and finance for speculative development will be unavailable in the short term.

A mixed picture of UK banks’ willingness to lend has been painted by property services firm, Jones Lang LaSalle.

Analysis by the firm published after conducting its Lenders’ Expectation Survey says well-capitalised banks are willing and able to lend in the belief that there is a great opportunity to grow market share. However, the firm said, these tend to be the German banks that are focused on prime assets.
However, the firm also says banks are struggling to match the completion speed of “faster moving” cash buyers.

The analysis is based on a survey of the lending market between now and 2011 that included 30 questionnaires and seven face-to-face interviews with banks in the UK during September and October last year.

It found the majority of banks – 35 percent – are prepared to lend between £25 million (€27 million; $40 million) and £50 million, with 30 percent prepared to lend between £50 and £100 million. Only 12 percent are willing to lend more than £100 million.

Loan terms are typically 3 to 5 years, with almost 50 percent of lenders offering a five year term. 

In addition, though only a small proportion of lenders are willing to finance deals of more than £100 million, Jones Lang LaSalle says loan sizes are growing and 26 percent of respondents expect such deals to be available from their bank at the end of 2010 and 48 percent at the end of 2011.

However, Jeremy Handley, director in the firm’s valuation advisory team said the issue was that there were not enough deals around to satisfy existing capital. “What we have now is dramatically different to the situation we had at the beginning of last year, and lenders are now finding they have more money to lend than the market can absorb. The key issue for both lenders and investors are the same – availability of suitable stock,” he said.

The research also found loan to values ratios are unlikely to increase in the short term from 65 percent, and will be kept rigid by credit committees. Interest cover ratios are more important to banks, it concluded. Further, speculative development finance will be unavailable in the short term. This is because of banks’ attitudes to risk are unlikely to change within the next year. 

Lenders are also concerned about the risk presented by variable income streams, particularly on turnover leases, which are difficult to underwrite in the current environment. Many banks will limit the amount that they lend against the turnover element of rents as opposed to regular rental income. 

The research also highlighted there will not be a “flood of product” from lenders looking to deleverage. Prime asset sales will be offered to the direct market, but “partnering” is the preferred route on more volatile assets for banks such as the nationalised Royal Bank of Scotland.