It seems that the property woes aren’t over yet. A follow-up report in today’s Telegraph delves deeper into last week’s Bank of England Financial Stability Report.
The Bank of England has concerns with regard to some £200 billion of commercial property loans made over the last few years by major UK banks. One eyebrow raising figure was that there has been a 44% drop in the value of offices, shops and warehouses since 2007.
Until now banks have been holding onto property instead of selling and in a lot of cases not enforcing Loan To Value (LTV) limits on loans where the loan is still being repaid regularly and on time. (Where property drops in value the lender can force the borrower to hand money over to keep the LTV within the original limits, which could of course potentially force the borrower’s business to go under. Then the bank would end up with more devalued property).
Between now and 2013 something like £160 billion of loans will need refinancing but, with the liquidity and compliance constraints being imposed on the lenders these requirements may not be met. This could force many companies out of business.
All in all the banks have declared assets on their books which far outweigh the reality of the situation. If forced to revalue them or repossess and sell below value, then they would possibly need to raise more capital to balance out their overall lending. That is on top of the new liquidity requirements.
The danger is that the banks decide to withdraw from the commercial property sector and trigger wholesale disposal of assets sending prices plummeting. Many believe the last crash was prolonged by such a sell-off in the 90s.
All this may mean a huge shortfall across the board in availability of money for lending across the board. This will of course include residential lending, which will mean less buyers in a market where redundancy, lack of mortgages and general negative sentiment will keep buyers at bay. That does not bode well for the housing market for the next few years. Maybe another 20% of falls working through the residential market in 2010 and 2012? The second phase of the dreaded double dip?
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Tags: commercial property, economics, finance, house price buble, house price news, House Prices, housing, loans, mortgage, News, residential property
It’s a major, major worry, especially given that so many are cock-a-hoop about coming out of the recession. No we haven’t – not by a long chalk and these sorts of figures return us to the sombre.
The Prime Central London area currently has a lack of stock, the euro is strong so we are seeing overseas byers entering the market in ever stronger numbers, the buyers in the Prime Central London are in most cases are cash buyers so in it for the long term.
We run a Prime Central London property finding service, most of our clients don’t need a mortgage and don’t need to sell their London property, many only occupy the property a few weeks of the year, many look at buying property in Lonon as a long term investment like buying art or wine.
So the Super Prime and Prime Central London markets we fell will se sharp rises early 2010, perhaps though once again it’s the buyer of multi buy to lets that will have the problems, in any market oversupply can be the weak link, developments where many people have purchased buy to lets may have needed to rely on rental income for all their properties.
Overall our view is the Prime areas will see price rises, the rest of London we will have to wait and see but if you live in the one home you have purchased then you are going to have less of an issue longterm, the buy to letters who did not plan well will have different issues though.
John Aitken
BuyersAgentLondon.com
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