UK Commercial Property Loans Underwater

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Almost half of the U.K.'s £198 billion ($303 billion) in commercial property loans can't be refinanced due to declining property values and the struggling economy, a new study concludes.

Based on terms available in today's lending market, about £92 billion of bank loans would likely not meet standards for refinancing, according to a survey of 78 lenders conducted by De Montfort University.

The weakening economy and declining capital values are making lenders more cautious, said Bill Maxted, who wrote the report with Trudi Porter. "The situation with many existing problem loans was deteriorating." 

With almost a quarter of all property loans in "severe distress," lenders cut U.K. commercial property lending by 7.7 percent last year, according to Bloomberg. 

As the U.K. suffers from a weakening economy, many analysts are studying the performance of the property market.

For more than half of the loans issued during 2007 and 2008--when property prices were at a peak--lenders may have to adjust loans to reflect current property values, Bloomberg reports. At the same time, competition from German and U.S. lenders such as Wells Fargo and Morgan Stanley are forcing lenders to lower their rates.  

The survey found almost £45.5 billion of loans have to be repaid this year and more than 70 percent of all commercial property loans will be due in the next five years, according to the study.  

This was the second consecutive year when no lender was willing to finance developments without companies pre-committed to lease space, according to the survey's authors.