U.K. Lenders Cut Soured Commercial Property Debt as Values Jump

U.K. lenders cut the value of defaulted commercial-property loans on their books by almost a third to about 15.7 billion pounds ($23.3 billion) in the six months through June, helped by rising property values.

The amount remaining in default represents about 9.6 percent of loan books at British banks, according to a survey of 83 lenders by Leicester, England-based De Montfort University published Friday.

U.K. commercial property had a total return from rental income and price gains of 14.3 percent in the 12 months through November, according to data compiled by MSCI Inc. That gave lenders confidence to grant new credit, with the 24.7 billion pounds of loans advanced in the first half the most since the same period in 2007, the De Montfort survey shows.

Even with the surge in lending, outstanding commercial property debt is poised to fall to a 10-year low this year, after declining 1 percent to 163.7 billion pounds in the first half of the year.

“We seem to have reached a turning point in the amount of commercial property debt in the market, with the impact of post-crisis deleveraging almost totally canceled out by new lending,” said Ion Fletcher, director of finance policy at the British Property Federation. “Lenders remain risk conscious.”