Amidst further bad news of bank write-downs and losses, the major Banks are clearly still wary of lending to each other and the 3-month LIBOR rate remains stubbornly high. The Bank of England’s latest Credit Conditions Survey gives little cause for optimism with regard to lending activity for the next few months, although the recently announced plan to inject an extra £50 billion of liquidity in to the banking system has been broadly welcomed and should start to be felt later in the year.

Sourcing debt for commercial property remains challenging and expensive, with lending margins high and typical LTVs settling in the 70-75% range.  For the right asset (and borrower), debt is available, albeit that deals over £50 million will generally have to be co-underwritten by more than one lender and development finance is very limited.  With a significant proportion of property loans up for refinancing this year, there are concerns that some banks with significant exposure may choose not to renew the facilities, which would potentially cause considerable problems for those investors unable to secure alternative sources of funds, but equally may improve property investment supply.

On a more positive note, interest in the moribund CMBS market appears to be gathering at least a little momentum again, with a growing number of banks and funds looking form is-priced  opportunities.  CMBS spreads in the UK at the time of writing were 250 basis points above LIBOR for some AAA-rated securities, albeit based on low trading volumes, with spreads on BBB notes around three times this margin. There is also a greater degree of optimism that activity will begin to re-emerge in the next few months, as banks look to improve loan book capacity by issuing new CMBS. Read more below in Cushman and Wakefield report…

Marketbeat - UK Property Market 2008 PDF

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