Commercial property debt defaults rise to £30 billion in the first half 2009
According to a study at De Montfort University, the amount of UK based commercial property debt in default has more than doubled in the first half of 2009,which is clear evidence of the impact of the global financial crisis upon the UK property market.
The study stated that loans that were in breach of agreements in the first half of 2009 reached in excess of £30 billion, which is the equivalent of the entire South Africa commercial property market. This amount is more than double the £13.8 billion which was reported at the end of 2008.
Bill Maxted and Trudi Porter of the De Montfort University’s Department of strategy and Management said that “the prospects for a swift recovery in activity in the commercial property lending market seem unrealistic. A slow, prolonged and perhaps, painful, improvement based on the performance of the U.K. economy appears in prospect.”
“The primary reason given for loans to be declared in breach of financial covenant and for loans to eventually default, was the dramatic loss in capital value of the property securing the loan and, in instances of default, this combined with the loss of cash flow,” the paper said.
The outstanding debt retained on balance sheets of lenders has fallen slightly to £224.1 billion in mid 2009, compared with £225.5 billion at the end of 2008, according to the report. The report went on to state that “this is the first decline in value recorded by this research and indicates the extent to which the lending market had come to a standstill.”
