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
Outstanding debt to property(£bn)
– to standing property(£bn)
– to development (£bn)
Net lending to property (£m)
– to standing property(£m)
– to development (£m)
Property as a % of outstanding debt
Source: Bank of England
Prohad Khan, Property Economist, firstname.lastname@example.org