CONFIDENCE OF REAL ESTATE LENDERS STILL HIGH DESPITE BREXIT

Nearly three quarters of real estate lenders expect to increase the number of new loans they originate in the next 12 months despite concerns over Brexit and political uncertainty, according to new research.

According to the findings, 72% of lenders expect to increase the number of new loans they originate in the next 12 months, compared to just 2% who expect volumes to fall. This confidence is being mirrored by recruitment plans, with more than half (53%) of lenders planning to expand their team size.

Lenders see political risk as the greatest threat to the UK commercial property market in 2018.  It was viewed by 70% of lenders as their biggest concern. Of these, Brexit was most frequently mentioned (40%), along with concerns over a potential change in government, and general political uncertainty.

Lenders also widely anticipate that interest rates will rise this year (71%), along with UK treasury gilts (65%), which will impact the cost of finance. Loan margins are expected to remain broadly stable, as they have done in the last year. Where margins have risen, and significantly so, it is in the higher risk lending categories, such as mezzanine, bridging and preferred equity finance.

Income covenant requirements (ICRs) on investment loans have eased in the last year, making it possible for borrowers to access more capital. Insurers, for instance, have seen drastic change in their underwriting criteria, lowering their ICR from an average of 200% in 2017 to 185% in 2018. European banks buck the trend, with their ICRs tightening significantly, following the impact of implementing Basel IV.

The findings also revealed that the time taken to access finance has increased as some of the UK’s largest lenders continue to adapt to a raft of regulatory changes and internal restructuring. On average it now takes 53 days to get a commercial real estate loan in the UK, from agreeing terms to drawdown of funds, this is a 7 day increase on last year.