Construction Loans News:- New commercial property lending reached £49.6bn in 2018 – a 12 per cent rise despite property deal volumes dropping by 13 per cent, according to the findings of a new report.

The Cass Business School UK Commercial Real Estate Lending Report showed new development finance hit £8.8bn with residential development accounting for the largest slice at £5.2bn.

Hank Zarihs Associates | Lending volumes on commercial property for 2018 rose significantly

However, this was £1bn less for new residential development finance than in 2017. Lenders also mentioned that developments of private rented sector projects were still difficult to finance and these made up £1.7bn.

Report author, Dr Nicole Lux, said 2017 had been a strong year for property transactions. “It remains to be seen if the debt market was just catching up in 2018. Historically a relationship of 1:1 could easily lead to an overheating market and 2019 needs to be carefully monitored.”

Appetite for new borrowing grew

She said new loan origination increased to 29 per cent of turnover in 2018 compared with a ten-year 20 per cent average.

“A relatively large amount of 26 per cent of new loans was distributed via loan syndication, showing market depth and breadth are widening,” said Lux.

The report noted that loan pricing had remained stable with slight downward pressure for loans secured by prime property and low loan-to-value ratios.

Construction Loans – HZA

Hank Zarihs Associates said the findings reflected robust demand experienced by brokers for both property development funding, construction loans and short-term bridging finance.

Pricing of loans secured by prime retail property increased by 233 basis points from 214 over the 12 and for secondary to 334 basis points from 285 in the 12 months to December 2018.

The report said loans secured by retail property were the most expensive to finance due to credit concerns about the quality of retail income.

Average default rates for project finance loans was 1.3 per cent, 0.7 per cent for residential mortgage-backed securitised loans and 0.18 per cent for BBB, medium credit quality,  corporate loans.

In comparison defaults for secured commercial real estate loans was 3.2 per cent and write-down provisions were at 8 per cent of the value of defaulted loan value in 2018. This leaves secured commercial real estate loans slightly more risky than other similar secured asset financings.

The survey was based on data from 74 lenders including three new entrants into the market. Prior to 2011 data was based on between 50 to 60 lenders.

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