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Commercial property debt in UK set to fall to 10 year low
Outstanding commercial property debt in the UK is on course to fall to a 10 year low during 2015, declining by 1% in the first half of 2015 to £163.7 billion, according to a new report. However, strong levels of new loan origination in 2015 mean that the total amount outstanding may actually increase for the first time since the recession, the report from academics at De Montfort University also says. The half year edition of the De Montfort Commercial Property Lending Report, the most comprehensive study of the UK’s commercial property lending market, concludes that the continuous decline in total real estate debt since 2008 appears to have almost halted and may subsequently be reversed by the end of the year. The value of new loan originations in the first half of 2015 was £24.7 billion, the highest half year value reported to the research since £49.2 billion recorded for the first half of 2007. In a further sign of commercial property market health, the value of distressed loans fell from £23.2 billion at the end of 2014 to £15.7 billion by the middle of 2015. The report also show that the proportion of loans with a loan to value (LTV) ratio of less than 70% has continued to grow in the first half of 2015, representing 80.5%, or £135.5 billion of outstanding debt of the traditional lenders and allocated to investment projects. Outstanding debt with a LTV ratio of between 71% and 100% fell from 14.3% of the total of £20 billion at the end of 2014 to 12% or £16 billon by the middle of 2015. The first half of the year also showed an encouraging pick-up in development finance, particularly for speculative or partly pre-let projects, where more non-traditional lenders now feel comfortable providing finance against such schemes. At the same time, the research suggests that banking regulation may be having an adverse impact on development finance by the traditional lenders. At the middle of 2015, only 2.8% of debt was allocated to commercial development projects by these lenders. Interest rate margins for senior debt continued their three-year long decline but the pace of decline has moderated considerably. By the middle of 2015, the average margin for senior loans secured by prime office property was recorded at 214bps, down from 218.7bps recorded at the end of 2014. The report suggests that that the floor in interest-rate margins may have been reached. Following a surge in non-traditional lenders in 2014, Banks and Building Societies remained the dominant lenders in the market, holding 76% of all loan originations at the middle year point compared to 75% at the end of 2014. The level of new lending by UK Banks and Building Societies remained stable at 39% of all loan originations. ‘We seem to have reached a turning point in the amount of commercial property debt in the market, with the impact of post-crisis deleveraging almost totally… Continue reading
Buy let stamp duty could make investment unviable for new entrants in UK
The extra 3% stamp duty tax being levied on buy to let and second home buyers in April 2016 means that it may no longer be financially viable for new entrants to the lower end of the private landlord market, it is claimed. And the new tax band will have a disproportionate impact on pensioners looking to generate revenue in retirement, according to Chestertons, one of London's largest estate agents. The announcement of the additional levy on second homes and buy to let purchases came as a surprise announcement in the Chancellor's Autumn Statement, and initially caused some confusion across the industry as pundits disagreed on how the additional 3% would be applied. Chestertons has now calculated that the extra duty will hit the lower end of the market more heavily in terms of a percentage increase than it will the higher end. A buy to let property acquired for £150,000 attracts stamp duty of £500, but under the new regime it rises to £5,000, a tenfold increase. By comparison, an investor buying a property for £1 million currently pays £43,750 in stamp duty, while the new rate will be £73,750, less than double the original duty, although of course a larger amount in cash terms. ‘The Chancellor claimed that this change to stamp duty would prevent wealthy investors and overseas buyers from pricing first time buyers out of the market, but as usual the devil's in the detail,’ said Nick Barnes, head of research at Chestertons. ‘What we can now see is that this change is likely to completely deter many first time landlords from getting into the private rental market in the first place, including pensioners looking to wisely reinvest their precious pension pot,’ he pointed out. ‘ The obvious effect of this will be that there may well be a significant number of smaller landlords deterred from entering the sector altogether. Those who remain will have their margins slashed and, on top of the increasing regulatory burden and the planned reduction in mortgage interest relief, they may have to raise the rent in order to make the numbers stack up. Either way, the already highly competitive private rental market is about to get a whole lot more so,’ he added. According to Robert Bartlett, chief executive officer of Chestertons, the industry had hoped that the Chancellor might have announced stamp duty change that would have helped the current negative impact on sales above £1 million. ‘We'd hoped he might consider capping rates, or reducing them by 3%, so you can imagine the dismay when this extra surcharge was announced. The buy to let sector has become an essential part of the UK housing landscape and we urge the Chancellor to think clearly around the rules for when this is being introduced,’ he said. He pointed out that a number of key questions still need to be answered, for example whether a buy to let investor who has contracted… Continue reading
London borough of Newham sees biggest urban house price rise in UK in 2015
Newham in London recorded the biggest percentage rise in house prices among major UK towns and cities over the past year, according to new research. The average house price in the London borough was 22% higher than in the previous year, increasing from £261,399 to £319,522 in 2015, nearly double the 12% increase in London as a whole. The research from home lender the Halifax, based on its own figures, also shows that Royston in Hertfordshire experienced the second biggest rise in average house prices with an increase of 19%. And all 10 top performers were in London and the South East. Stroud in Gloucestershire, Wellingborough in Northamptonshire, and Solihull in the West Midlands were the top performers outside London and the South East, recording price rises of 14% to 15% over the past year. A small number of towns recorded modest declines in house prices 2015. Prices in Merthyr Tydfil in South Wales fell 3.8%, in Colwyn Bay in North Wales they fell by 2.3%, while in Durham prices were down 2.1% and in Coalville in Leicestershire down 0.5%. The 10 worst performing towns are outside London and the South East with the exception of the country’s most expensive area, Kensington and Chelsea, where prices have risen by just 1% in the last year. ‘Those areas that have seen the biggest house price increases over the past year are either in outer London or within close commuting distance of the capital. Demand in these areas has risen as rapid house price rises in central London in the past few years have caused increasing numbers of people to look for property in more affordable areas,’ said Martin Ellis, housing economist at the Halifax. ‘A few towns have experienced modest price falls. These areas are typically still suffering from relatively weak employment and economic conditions, which has dampened local housing demand,’ he added. Continue reading
