2011 Will Continue To See A 'limited' Commercial Mortgage Market

A recent publication from Jones Lang LaSalle a global real estate services firm, specialising in commercial property management, leasing and investment management (and a company named as investment agent of the year at the Property Awards 2010), indicated that this year we would expect to see a reduction in the accessibility of larger commercial mortgages and commercial mortgages per se.

The report surveys lenders' commitments to commercial mortgages and property in the UK. Whilst more of those questioned were willing to lend between GBP50 and GBP100 million in 2011, fewer thought they would be willing to lend above GBP100 million.

Jeremy Handley, director of Jones Lang LaSalle Valuation Advisory, said: "'The rollercoaster of financial crisis and sovereign debt continues and it seems certain that the European banking crisis is going to have profound and long lasting implications for the commercial property sector."

And this is all backed up by the statistics with borrowing on property falling by 7% in the last three month of last year and commercial lending falling to an all time low.

Lenders hope the commercial property market will begin a full recovery in 2012. The Jones Lang LaSalle report detailed that some lenders hoped for larger commercial loan deals in excess of GBP600 million from 2012 onwards when it is hoped the market will pick up again.

The vast majority of those interviewed for the survey cited a ceiling Loan to Value (LTV) ratio of between 60 per cent and 70 per cent in 2010, though several believe this figure will stay below 60 per cent over the next couple of years. Most lenders do not expect commercial lending to be on offer at rates over 70 per cent in the next decade owing to legislation, new regulations and a lack of available cash.

There was a degree of optimism from a minority of lenders on the issue of LTV; many lenders expect commercial mortgages to be available at higher LTVs from 2012. Just 37 per cent expect the maximum LTV to be above 70 per cent although none expect to see loan to values above 80% by 2013.

As with all financial matters concerning property the Capital is where we see a significant amount of the commercial mortgages going. Though surprisingly not for retail but office space which is reflected across the country. It appears those lenders like the simplicity associated with office deals!

Director in City Investment at Jones Lang LaSalle, Andrew Hawkins, pointed out that there were challenges in the lending market, but also opportunities. He said: "The lending markets are quick to change and fluctuate, and it has become clear throughout our interviews that credit conditions are shifting. A year ago we were predicting greater liquidity than we are now experiencing and the outlook is similarly challenged. There is without a doubt a polarising of debt provision with borrowers with strong existing relationships are well placed to access the lending markets, whilst although not impossible for new entrants, the challenges are still there."

This survey is an important market indicator, and worth studying. If you are searching for a commercial mortgage to buy property, it could still be a difficult process over the next two to three years. You are probably likely to have to put down a much higher deposit (currently around 30 40 per cent) and, if you are hoping for a large loan, you may face new governmental restrictions on the kinds of lenders you are able to approach.