Bank of England’s lending figures for Q1 2008 were quite sound and surprising. (Albeit the addition of Building society data for the first time gave it more of an upside).

Kelvin Davidson from Capital Economics remarked: ”Looking ahead, it seems likely to us that over the medium term a positive financing gap will exist between commercial property income returns and five-year swap rates.  That said, however, the balance of evidence suggests that lending margins will remain high (and possibly even increase further), while obtaining finance – which, at least anecdotally, is difficult at present – will remain a problem.  As such, although it is hard to see in today’s data, we expect the flow of lending to the commercial property sector to cool meaningfully over the course of this year. ”

 Total new lending flows were £61bn in 2008Q1, up 20%y/y and the second highest quarterly total (in both nominal and real terms) in the 21-year history of this data.  In the commercial property sector, new lending flows in Q1 were £9bn, up 50%y/y and, again, the second highest quarterly figure of the last 21 years.  On these data, loans to the commercial property sector total £202bn. This equates to 11.6% of all outstanding debt and easily surpasses the early 1990s peak of 10%. (See PDF Chart below)

Bank Lending to commercial property - Q1 2008 PDF