Lending to commercial property (Dec.) - Capital Economics
UK Commercial Property

Lending to commercial property (Dec.)

UK Commercial Property Data Response
Written by Prohad Khan
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In line with our expectations, net lending was negative again in December and we expect it to remain so in the coming months. After all, we think a weaker near-term economic outlook will restrict the availability of credit, while the likelihood of subdued investment activity this year will keep a lid on demand.

Negative net lending likely to continue in the near-term

  • In line with our expectations, net lending was negative again in December and we expect it to remain so in the coming months. After all, we think a weaker near-term economic outlook will restrict the availability of credit, while the likelihood of subdued investment activity this year will keep a lid on demand.
  • Net property lending by banks and building societies was negative in December, at minus £445m. (See Table 1.) That negative figure was consistent with the latest Bank of England’s Credit Conditions survey, where lenders reported that the availability of credit declined in Q4. However, December’s outturn represented a slight improvement compared to the minus £716m recorded in November. This is likely to reflect the pickup in investment activity in December.
  • December’s negative net lending figure was driven by a £285m fall in borrowing for development, from minus £169m in November. We think this reflects a reluctance by developers to start new projects, as well as them acquiring bridging loans for delayed projects. Meanwhile, net lending for standing investments reached minus £160m this month, well down from November’s minus £547m. (See Chart 1.) And despite the slight fall in outstanding debt to property, the share of property debt remained relatively low at 6.9%.
  • Our own view is that net lending to commercial property will stay in negative territory over the coming months. This is in line with expectations in the Credit Conditions survey, where lenders indicated that availability would fall in Q1 too, citing concerns around pricing. With the near-term economic outlook worsening due to tight restrictions in the first half of this year, we think banks and investors will act more cautiously. This will keep a lid on investment activity in the coming months, preventing any growth in credit.

Chart 1: Net Lending to Property by Banks and Building Societies (£Bn, Monthly Total)

Table 1: Lending to Commercial Property – Key Figures

 

Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

Outstanding debt to property(£bn)

163.1

162.9

167.7

166.8

170.5

170.6

168.9

169.3

169.8

169.3

168.6

167.8

– to standing property(£bn)

148.7

148.5

152.4

151.5

154.9

155.0

153.3

153.6

154.3

153.9

153.4

152.8

– to development (£bn)

14.4

14.4

15.3

15.3

15.6

15.6

15.6

15.6

15.5

15.4

15.3

15.1

Net lending to property (£m)

124

199

4795

-718

3028

29

-1678

117

558

-577

-716

-445

– to standing property(£m)

72

197

3918

-721

2703

-125

-1542

61

657

-465

-547

-160

– to development (£m)

52

2

877

3

325

154

-136

56

-99

-112

-169

-285

Property as a % of outstanding debt

6.9

6.8

6.9

6.8

7.0

7.0

6.9

6.9

6.9

7.0

6.9

6.9

Source: Bank of England


Prohad Khan, Property Economist, prohad.khan@capitaleconomics.com