The Commercial Mortgage Market Will Remain 'Limited' in 2011

The availability of commercial mortgages and business finance to the property sector is still limited according to a new report from a leading UK property company. Jones Lang LaSalle's 2011 Lenders' Expectations Report found that lenders expected to lend lower amounts in 2011 compared with 2010.

The report has examined the level of lenders' commitment to the commercial mortgage market and property in Britain. A majority of those who responded to the questionnaire were prepared to lend between £50 and £100 million in 2011, fewer thought they would be in a position to lend more than this in the coming year.

Director of Jones Lang LaSalle Valuation Advisory, Jeremy Handley, said the long term lending environment was unpredictable and in a poor state: He said "'The rollercoaster of financial crisis and sovereign debt continues and it seems certain that the European banking crisis is going to have profound and long lasting implications for the commercial property sector."

The report follows the publications of Bank of England lending figures indicating that commercial mortgages and lending to the property market over the last three months of 2010 fell by an enormous £16 billion to £221 billion; the largest drop since the series began in 1987.

Lenders expect the commercial property market to begin its full recovery in 2012. The Jones Lang LaSalle report showed that many lenders expected larger commercial loan deals of over £600 million from 2012 onwards when the market is expected to pick up again.

The vast majority of those interviewed for the survey cited a ceiling Loan to Value (LTV) ratio of between 60 per cent and 70 per cent in 2010, though several believe this figure will stay below 60 per cent over the next couple of years. Most lenders do not expect commercial lending to be on offer at rates over 70 per cent in the next decade owing to legislation, new regulations and a lack of available cash.

There was a degree of optimism from a minority of lenders on the issue of LTV; many lenders expect commercial mortgages to be available at higher LTVs from 2012. Just 37 per cent expect the maximum LTV to be above 70 per cent although none expect to see loan to values above 80% by 2013.

The office sector is by far the most popular for new lending with an average weighting of over 40 per cent for each of the three years. Commercial lenders believe that the commercial office market is the easiest to manage and the most transparent which is why they are more likely to consider commercial lending in this area, especially in London.

Andrew Hawkins, a lead director in City Investment at Jones Lang LaSalle, said: "The lending markets are quick to change and fluctuate, and it has become clear throughout our interviews that credit conditions are shifting. A year ago we were predicting greater liquidity than we are now experiencing and the outlook is similarly challenged. There is without a doubt a polarising of debt provision with borrowers with strong existing relationships are well placed to access the lending markets, whilst although not impossible for new entrants, the challenges are still there."

In summary we have had it tough recently and companies looking to purchase assets via the commercial mortgage market have found it particularly hard especially with the stringent requirements and larger deposits. This year we may see things get better and we would hope to see that improvement sustained throughout 2012 and 2013. What a difference a year makes!


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Timothy Frodsham writes for Just Commercial Mortgages the UK's No.1 site for the latest commercial mortgage rates and commercial property finance news.