Savills: Lenders ‘starved of opportunities’

Four out of five lenders want to increase their loan book in 2017 but will struggle because of a lack of transactions and stock, says Savills. Speakers at Savills’ 29th annual Financing Property presentation, the first without William Newsom since his retirement, said UK property remained hugely attractive to lenders because of the spread between the all-in cost of money and UK all property equivalent yield. But while appetite to lend has grown, property returns and transactions have dwindled, leading to fewer new financing arrangements. Figures from De Montfort University revealed that lending origination levels in 2016 were down by 17%, with only 39% targeted at new acquisition lending. Refinancing accounting for 61% of total lending. “There’s no evidence to suggest it’s down to a lack of willingness to lend,” said Nick Hume, who presented the results. “This is a market starved of new opportunities.” A total of 32 lenders made Savills’ big-ticket lender list, up from 28 a year ago, with Deutsche Hypo, Goldman Sachs, NBAD, OCBC, RBC and TH Real Estate all joining the list. The criteria was also slightly different, with two loans above £100m against UK real estates assets needed. Big ticket lenders [two loans over £100m on UK prop] Create your own infographics UK banks and building societies increased their market share from 34% to 47% in 2016, with refinancing activity likely to be a contributing factor. Insurance companies and North American banks, which focus on the prime market and portfolios, saw a decrease in market share, while German banks maintained their position. Savills said much of the lending appetite was focused on the prime market, which is seeing more competition owing to a lack of available product. Hume said 2016’s fall in lending was due to four factors: the referendum, low levels of stress and forced sales due to value rises, lack of opportunities to redeploy capital and overseas investors having alternative sources of finance. He did, however, point out that 2017 had started very well. Hume said the opportunity areas for lenders were diversifying by sector, regional cities, reducing the size of target loans and good secondary product. It said the structural shifts in several markets had given rise to a range of new lending opportunities. London and the prime markets were very well priced, he said, adding that even if investment volumes increased it might not mean more debt, because overseas companies did not need conventional debt. Ian Malden, head of valuation at Savills, said: “While the strong desire to lend is generating increased competition in the market, we are in a hugely multi-faceted environment where lenders are compartmentalised into niche groups focusing on different areas. “However, with the prime sector at the top of the agenda for the majority, the balance of power sits firmly with the borrower for this type of product.” Savills said that the overall lending market was stable, with just 0.4% of loans by volume in breach and the average LTV ratio at less than 60%. Commercial market In the commercial market, transactions in the first quarter of 2017 were their strongest for quite some time, with the relative affordability of the UK holding up well across Europe. The consensus was that while prime and London assets were preferable, there were more opportunities regionally. On a sector-by-sector basis, retail remained challenging, with consumer confidence and real wages down, while industrials were the flavour of the month, though suffering from margin pressure. Regional offices were seen as more attractive than those in London. Mat Oakley, head of UK and European commercial research at Savills, said: “Prime will always hold its attractions but investors who are prepared to move up the risk curve may find opportunities in UK regional offices, where rents are rising and growth is less volatile than in London, or in alternative assets, such as pubs, which provide secure income. “Outside London and the South East it tends to be a lender’s market, but borrowers looking at the regions are likely to find a broad range of niche lenders and alternative financiers willing to loan to those who have done their homework.” Residential market In the residential market, London has cooled in response to government tax policy, but there is increasing pressure to boost housing supply across a range of tenures. Lucian Cook, head of residential research, said the opportunities are likely to be in the PRS and retirement markets. Lucian Cook, head of UK residential research, said: “Private renters aged 24-44 have increased by 1.3m in a decade, driving demand for more housing across different tenures including built-to-rent homes. Although there are around 48,000 build-to-rent units in the pipeline, there is huge growth potential for investors given the stable long-term returns on offer.” To send feedback, e-mail alex.peace@egi.co.uk or tweet @egalexpeace or @estatesgazette