Commercial Property Market 2011

The Bank of England reports that 4 out of 5 loans to property owners and developers are in breach of their loan-to-valuation covenants. A total of £243 billion of commercial property loans exist and hang over the whole market.

The risk is that property valuations have been maintained artificially high in an attempt by everybody to ward off serious re-adjustments.  But is the banks start to become more aggressive in foreclosing, it will precipitate a cycle of valuation falls that will put more companies into breaches of their covenants and force more foreclosures; to everybody’s detriment.

The fact that in the 3 years since the peak of the property boom, indebtedness has only fallen by 3%. 54% of these loan will mature before the end of 2014 and there is no immediate prospect of refinancing becoming available.