THE VALUE of bad bank loans to the commercial property sector has fallen to its lowest level since the credit crunch, but banks’ tightening of lending criteria has gone too far, Saving Stream has warned.
The peer-to-peer property lender said that the drop in bad loans was good news, but had left a “funding gap” that could provide an opportunity for the P2P industry.
Bank of England figures show the value of bad bank loans to the commercial property sector has dropped by 63 per cent, with £846m of write-offs in the year to September 2016, down from £2.27bn the previous year.
Liam Brooke, co-founder of Saving Stream, said the figures suggest that lending to the commercial property sector has continued to become less risky as banks demand more collateral from borrowers in the shape of lower LTVs (loan-to-value).
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Brooke said many high street and some challenger banks have scaled back their lending to property developers, even in cases where the development has been pre-let to a tenant.
“The risk is that many sensible property investments and developments are not able to get funding from traditional sources,” he said.
“Feedback that we are getting from our customers is decision on funding from some banks has slowed to a crawl.”
He added that banks have become particularly reticent to fund investment in commercial properties that are let out to tenants that are not a public sector organisation or a ‘blue chip’ business.
“A good crop of what are still high quality investment opportunities need funding, and P2P investors are taking on that risk that Basel III has dissuaded banks from getting involved with,” said Brooke.
“With bricks and mortar continuing to be a popular investment choice for individuals, P2P models such as ours which provide an accessible way to match this strong supply and demand are gaining real traction.”
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