Driver Jonas - Commercial Property Finance 2003 Bank Survey
The Driver Jonas survey reveals the following:
A reduction in banks providing smaller loans of £1.5m and larger loans of £20m+ with greater concentration on the £5-20m band
Increases in arrangement fees as 24% require fees of between 0.25% and 0.5% of loan amount, versus 47% last year. Most of the movement went to the 0.5% to 1% band with some increase in the over 1% level.
The change in margin is slight and indicates that banks wish to achieve greater returns through increased fees rather than margin.
Lending terms have shown reductions for the longer term loans and increases in periods of between 1 to 5 years.
The main asset classes of office retail and industrial are still favoured but reductions in interest in residential, leisure/hotels and health sector are shown.
The Drivers Jonas survey shows that lenders are still keen to provide funds to the property market and this is especially so for investment transactions. User demand is low in certain markets such as the well publicised office sector in the City of London and Thames Corridor. However these areas only represent a small part of the total UK market and provincial cities plus other sectors, such as retail and to a lesser extent industrial, continue to do well. Lenders are well aware of these differences and have the confidence to lend aggressively in the right circumstances.
Improvements in risk underwriting and valuation procedures allow the banks to understand the risks they are taking and will structure their loans accordingly. As a result, high gearing levels and fine margins will continue to be available for sound investment properties, but appetite for speculative development lending will be extremely thin. There continues to be an air of caution running through the lending market although most participants in the survey felt the market would be stable in 2003/2004. Borrowers should be aware that the subjective view of bankers will result in different terms being offered for the same deal.
Low interest rates have helped sustain a strong lending market and maintained buoyant values. It is likely this trend will continue although there may be some volatility in the near term. However, long term it is unlikely that rates will rise to a level that will blunt the banks appetite for well secured property loans but it will have a negative impact on property prices.
Commenting on the survey Alan Russell, partner at Drivers Jonas and head of DJ Finance, said: "Whilst national economies worldwide have struggled to grow in the past year or so, the very low interest rates combined with the banks favouring the property sector has resulted in an excellent lending market over the past twelve months with participants looking to increase their loan books and most have a positive outlook for 2003/04."
He added: "A combination of low rates and poorly performing alternative asset classes have created a buoyant property investment market that has become highly dependent on high levels of gearing and low interest rates."