U.K. Lenders Slash Defaulted Commercial Property Loans

New Build Construction As Luxury Developing Boom Fails To Boost Affordable Homes
Workers lower concrete pillars in front of the Canary Wharf business, financial and shopping district skyline, at the Royal Wharf development site, constructed by Ballymore Properties Ltd. in the Pontoon district in London, U.K., on Thursday, May 21, 2015. Developers are seeking to appeal to foreign buyers, who favor apartments, with high-rise, high-volume projects, particularly in east London. Photographer: Simon Dawson/Bloomberg

U.K. lenders cut the value of defaulted commercial-property loans on their books by almost half to about 23.2 billion pounds ($36.3 billion) last year, helped by rising property values.

Bad loans were cut by about 21.5 billion pounds in 2014 according to a survey of 83 lenders by De Montfort University that was published Friday. The amount remaining in default is equal to about 15 percent of the loan books, the report by the Leicester, England-based university estimates.

Lenders had 8.3 billion pounds of provisions on bad credit at the end of last year, a decline of almost 11 percent from 2013, after selling loans and disposing of underlying properties. Some of the assets sold for higher values than expected, allowing the lenders to “write back” part of the money they’d set aside to cover losses, the report said.

“The commercial real estate lending market recovery is now well and truly established, with the further reduction of outstanding loans and the significant fall in the number of distressed loans indicating a healthier and more competitive market than we have seen for years,” British Property Federation Chief Executive Officer Melanie Leech said by e-mail.

The value of new loans advanced by lenders for commercial property rose 51 percent last year to 45.2 billion pounds, according to the survey, the largest of its kind covering the U.K. That’s the most since 49.8 billion pounds of credit was issued in 2008.

U.K. banks and customer-owned lenders saw their market share of new loans decline to 39 percent from 43 percent last year. North American banks were the biggest gainers, increasing their share to 11 percent from 5 percent.

The total amount of outstanding loans was 181.3 billion pounds at the end of 2014 compared with 255 billion pounds at the peak in 2008.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE